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How Gifts can Create Havoc on your Estate Plan

If you are thinking about giving a gift of significant value to a loved one during your lifetime then you should take a minute to consider how it will impact your estate plan before you do. You may be creating a family feud that will erupt once you’re gone.

Oftentimes parents and grandparents will want to help a child or grandchild pay for a large purchase like a car, first home, college education, wedding, or help with financial hardship. While this may be a loving and innocent way to help your family, it may result in unintentional consequences.

For instance, let’s meet Virginia who is a widow and mother of five children. In her will, Virginia gives each of her five children an equal share of her $1,000,000 estate ($200,000 each). During her later years, Shirley, one of Virginia’s children suffers serious financial hardship and asks her for help. Virginia does not hesitate to write a check for $100,000 to help Shirley. Virginia considers the gift an advancement of Shirley’s inheritance, but puts nothing in writing. As a result of this help the value of Virginia’s estate is now $900,000. When she passes, each of her five children will now receive $180,000, instead of the $200,000 she originally planned. And Shirley who received the help has really received $280,000.

Not only will this gift impact the outcome of Virginia’s estate plan, it also may result in feelings of resentment from her other children. This resentment may cause the type of discord among her family that she tried hard to avoid.

Although you cannot control family dynamics and long-harbored feelings of others, you can control how gifts given during your lifetime are treated with regard to your estate plan.

In order to have your estate plan reflect a gift given during your life, then the gift would need to be treated as an “advancement.” A gift is treated as an advancement when it is proven by a writing made contemporaneously with the gift and signed by you as the donor. The writing must evidence that your intention was to have the gift treated as an advancement.

Just because you told the recipient that the gift was an advancement of his or her inheritance does not mean that it is so. In addition to advancement issues, there may be tax consequences to giving significant gifts during your lifetime that should be considered.

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