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Tax-Free Techniques for Leaving Living Inheritances to Your Children

Have you considered the timing and tax implications of your children receiving your inheritance? 

According to financial experts, many of us will live into our 80s and 90s as a result of rising life expectancies, and your children will most likely inherit in their 60s or 70s. 

Would you like to leave some assets to your children before they reach this age? 

Fortunately, you don’t have to die in order to leave them some of your estate. 

Consider the following tax-advantaged strategies for passing assets on while you’re still alive: 

1. Discuss with your children how to begin saving for their children’s education. 

Many states offer tax-free savings accounts. Some of these plans even allow students to attend a university in another state with their education funds. 

The earlier you establish education accounts for your grandchildren, the more money they will accumulate over time because they will have a longer period of growth. 

If you want to give the money directly to a university, you won’t have to pay any taxes. 

2. Every year, give your children “gift” dollars. You can give each of your children up to $16,000 tax-free per year (as of 2022) for their birthdays, Christmas, or May Day. 

In fact, you can gift that much to as many people as you want(whether related or not) without being taxed on it. 

Consider how your 30-year-old children can also put the money to good use while raising young families. 

Imagine the feeling, enjoyment, and possibly stress relief you could bring to each of your children by making some generous gifts now, without anyone paying any taxes on them

3. Budget for anticipated medical expenses. 

Give money to the medical facility if you have children or grandchildren who will always require special medical care. 

This way, regardless of how much money you give, you won’t have to pay any taxes on it. 

4. Make use the cash value of your life insurance policy. 

You can take out a tax-free loan against the cash value of your life insurance policy and give it to your children. 

Regardless of the amount you withdraw from your policy, the government does not tax those who use these borrowed funds. 

As long as each gift is under the IRS limit ($16,000 in 2022), your children will receive the funds tax-free. You can keep those funds tax-free as long as your policy is active. 

If you don’t want to, you don’t have to pay them back. Your heirs don’t have to pay those dollars back to the life insurance company after you pass away. The loans will be covered by the policy. 

Keep in mind, however, that the loans will reduce your beneficiaries’ death benefits. 

Taking out the loans gives your children money now rather than later. By giving them to your heirs now, you’ll reduce your overall assets that taxes may be required to pay when you die. 

Everyone benefits. 

When you give your children a substantial amount of money, you’re there to see the joy it can bring. Your heirs can put the money to good use right now, when they might really need it. 

When you die, your heirs will pay fewer taxes and keep more of your assets. 

Gifting some of your children’s inheritance tax-free now, can allow you to all enjoy this special time together!

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