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What To Do When Your Heirs Want An Advance Against Their Inheritence

  • By: Christopher Benson
  • Published: March 3, 2014

It’s a tale that’s so old, it’s documented in ancients stories and religion: Child wants money against Dad’s better judgment. Dad gives child his inheritance. Child spends the money on foolish things and comes home broke. No parent wants to see an inheritance, their legacy left for their child, wasted. So what do you do when an heir comes asking before it’s time?

The first thing you need to decide is if this money is a gift or a loan. If it’s a gift, there are tax laws that stipulate how much you can give before it becomes taxed–$14,000 as an individual, $28,000 as a couple.

If it’s a loan—even between family members—it needs to be handled as such. You should have the debtor sign a promissory note, even if you never expect you’ll get repaid, and record all the terms of the agreement in writing. You should assign an interest rate to the loan for tax purposes. Once the note is signed, you should include it in your Trust and/or Will if it’s being treated as an advance of sorts. This way, it can be counted back in if repaid, or the unpaid balance can be added to the estate for tax purposes.

Another option is to advance everyone in the estate his or her share at the same time. This way there are no misunderstandings when the other siblings or grandchildren learn of the gift.

Over the past 32 years, the Law Offices of Christopher A. Benson has helped more than 800 clients prepare and utilize simple and effective planning techniques to protect them and their families in order to avoid probate, save estate taxes, save money and save added emotional burden that comes from long term illness and/or death of a family member. Give us a call to schedule a free consultation to find out how we can help you and your family.

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