The Overlooked Virtues of Passing Down Wealth During Life

The thought of heirs inheriting substantial wealth upon one’s own death brings a lot of happiness and comfort to people as they face their own mortality, Toland said, but that’s a very abstract type of happiness.

“On the other hand, it’s such a joy for people to be able to see the impact they are having with their own eyes,” Toland said. “They can see how their own hard-earned wealth is providing a lot more quality of life and relieving some of the financial tension in their family. Or maybe the stakes are lower and they’re just taking the family on a big vacation.”

In either case, the earlier use of the wealth is deepening the family connection while the older generation is still living, and that can be a beautiful thing for all involved, Toland explained. It’s also not worth getting caught up in concerns about whether the money is better off staying invested, so that it can be a bigger gift later in life.

“That perspective is kind of missing the bigger picture that the size of a gift in dollar terms doesn’t necessarily define its importance or impact,” Toland said. “And the next generation can always choose to save and invest the money for their own future retirement, if that’s the best outcome.”

A Test Run for Bigger Gifts

Among those in agreement with Harding and Toland is David Blanchett, head of retirement research at PGIM DC Solutions.

Blanchett pointed to many of the same arguments as Toland, noting that a smaller gift given at a critical time earlier in life can have a much bigger “utility effect” versus a bigger gift that comes later, at a time of presumably greater economic stability for the recipient. The giving generation also benefits more in being able to see their giving have an effect with their own eyes.

“There is obviously a balancing act that you’ve got to play,” Blanchett said. “You don’t want to imperil your own retirement situation by doing things like, for example, paying for college for the grandkids. But assuming this isn’t an issue, it’s great to give with a ‘warm hand.’”

But there’s also another reason to consider accelerating some portion of the legacy giving plan — and that is to ensure that those who receive the inheritance can actually handle it. This is especially true for the wealthiest clients who may end up passing on many millions of dollars (or more) to various people and causes at the end of their life.

“Giving early can do a lot to show you if the person is prepared to inherit potentially significant wealth,” Blanchett said. “If you’re planning to give $1 million to each of your grandkids, for example, you could start by giving them each $50,000 and seeing how they manage that.”

It’s less about “testing” the next generation and more about being realistic about the way sudden, big inheritances can be a lot for people to handle. The receipt of smaller gifts earlier in life can help to build a younger person’s sense of financial responsibility, potentially helping them become a better steward of the family legacy.

“Whatever the case may be, it will be useful for you to know and to see how that money is received,” Blanchett said. “It may give you a lot of added confidence about your future giving goals, or it may help you to refine your giving plan.”

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