Passing Investments to Children — Millions!
I have a large amount of investments/wealth I will be passing on to my children. My wife and I creating two SLATS for most of these investments. One in each of our names.
We would also like to give each child 1 million dollars in a managed investment account. The are 22.20 and 18 yrs. old. The purpose would be for them to use for down payments on large purchases such as homes, etc.
Do you think putting this money in managed account is a good idea?
Terry Says
Those are big numbers. For the benefit of my readers, let me define SLAT first — a Spousal Lifetime Access Trust. Here’s the official definition:
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse for the benefit of the other spouse. The grantor uses their gift tax exemption to make a gift to the SLAT for the benefit of their spouse. Similar to other planning techniques to make completed gifts that are outside of the grantor’s estate, the grantor gives up his or her right to the property transferred into the trust while the beneficiary spouse maintains access to that same property.
The goal of a SLAT is to get assets out of a grantor’s estate and into a trust that can provide financial support for one’s spouse while sheltering those assets and any future growth from estate and gift tax. By creating a trust for one’s spouse, the grantor may continue to benefit from the property through the spouse without concern of creditor claims or estate tax inclusion.
The whole idea is to get money out of your estate before the current exemption on lifetime gifts ends — if it ends as scheduled — in 2025. For wealthy people, it’s a nice problem to have!
But your real question revolves around giving young adults a million dollars each!
I don’t know your children, but once they reach the age of majority, the money is THEIRS to use as they please. They can take it out of the investment account at any time! While you may think it is for a down payment, it could be for a Porsche (or a few of them) or drugs or travel. So, to get this money out of your estate you must actually let them be in control of it.
My personal opinion is an old Savage Truth: The lessons that cost the most, teach the most!
If you don’t care how they blow it, spend it, marry someone and potentially lose half in divorce etc., etc., then go right ahead and give your teens a million dollars each. The whole idea makes me wince.
What’s the alternative? Live long enough to be generous at the appropriate time — when they marry, graduate college, etc. They are likely going to get plenty of money when you die.
So the real question is: WHO SHOULD BLOW IT –YOUR TEENS OR UNCLE SAM (via estate taxes)??
