When you first chose to start working with a financial planner, you may have been concerned about making sure your money lasts for as long as you need it to. But, as you work together to grow your wealth, you may arrive at a different, much nicer problem: you now have more wealth than you’re able to spend in your lifetime.
If you are fortunate enough to find yourself in this position following many years of sensible investing decisions, you have a few options about how you can proceed.
You might choose to adjust your lifestyle so that you can enjoy more of your wealth. Another option, which may be in addition to these lifestyle changes, is to turn your attention to your estate plan and the legacy you’d like to leave behind for loved ones after you’re gone.
Passing on wealth to your family and friends is a lovely way to ensure it continues to provide for the people you care about. But you needn’t wait until you pass away to do this. Read on to learn why more people are choosing to gift wealth during their lifetime and some important factors to consider when deciding if this is suitable for you.
It’s traditional to pass on wealth in your will but there are drawbacks to this approach
Leaving an inheritance to your loved ones in your will is the traditional approach to passing on wealth. One of the greatest benefits of this method is that you can retain control of your wealth during your lifetime. This makes it much easier to budget for costs such as later-life care, which can be difficult to quantify ahead of time.
There are some drawbacks to this approach, though. As life expectancies increase, your beneficiaries may be nearing retirement age when they receive their inheritance. As such, they may have already passed significant life milestones that you’d like to help them with, such as a wedding, buying their first home, or starting a family.
Additionally, by passing on wealth after you have died, you won’t be able to see how the inheritance has benefited your loved ones.
Finally, depending on how your assets are distributed and which country your family is resident in for tax purposes, your beneficiaries may face high rates of tax on inheriting your estate.
So, despite the security that this approach offers you in your later years, the associated drawbacks warrant careful consideration.
Giving while living has many emotional and financial benefits
In recent years, it has become more popular to gift wealth during your lifetime for several reasons. Chief among these is the opportunity to see how your gift has helped your beneficiary.
Perhaps you’ll be able to attend your child or grandchild’s wedding or see them buy their first home. These special moments may be of far greater emotional significance to you than the monetary value of the financial gift that you are giving.
Additionally, giving while living means you can offer valuable guidance about managing wealth to your beneficiaries. This may be especially valuable if you are passing on a significant amount of wealth which may be overwhelming for recipients.
Of course, giving financial gifts does mean that the value of your estate will fall during your lifetime. This requires careful monitoring to ensure the gifts don’t jeopardise your ability to cover your own expenses, including any potential later-life care costs.
If you’d like to give financial gifts to your loved ones during your lifetime, it may be helpful to start by finding out what your annual gifting allowances are.
Singapore does not apply taxes to financial gifts, but it’s important to check the tax rules in the jurisdiction where your loved ones live. This may influence how you choose to gift wealth to ensure the greatest possible tax efficiency.
Your financial planner can help you to decide on the most suitable way to gift wealth to your loved ones
The most suitable strategy for you will depend on your personal circumstances and goals. You might choose one approach over the other, or you might find that a combination of the two suits you best.
The most important thing is to strike a balance between saving enough wealth to maintain your own financial wellbeing while also achieving your wish to provide for your family.
Your planner can help you to consider your options and make the most sensible choice for you based on your goals. A cashflow forecast can also help you to model how different approaches to passing on wealth might affect your own finances. For example, if you were to gift a lump sum this year, could this create a potential shortfall in income later on?
As a result, you can make an informed decision about how best to leave a meaningful legacy for your loved ones.
