Why gifting wealth early makes sense
The joy of giving and mentoring Before you continue reading How financially free are you? Most people overestimate their financial freedom. Discover your Financial Freedom
The joy of giving and mentoring Before you continue reading How financially free are you? Most people overestimate their financial freedom. Discover your Financial Freedom score through a quick survey Calculate My Score Tax rules across borders Passing on financial wealth A friend inherited his parentsā wealth after his elderly widowed motherās demise a few months ago. He admired his fatherās wisdom in creating and managing assets: the paperwork and processes were so well thought out that his mother lived comfortably and without financial worries.My friend hadnāt been so fortunate. For most part, he struggled with an unstable career, a broken marriage, and the burden of responsibility towards his children. Finally, he has inherited a fortune, except that it has come too late. He is 65, and wondering whether he has any choice but to pass on the wealth to his children. We were talking about doing that while it still mattered. Should one bequeath assets while still alive?We are staring at higher life expectancy. Inheritors, without doubt, would be happier to get some of the assets before they become too old to use and enjoy them meaningfully. We also live through relatively prosperous times. It is not uncommon for the middle class to own property as well as to have savings and investments accumulated and appreciated in value. Both these point to the possibility that we can give with our own hands while still alive, and also be secure about our finances.When one begins to give assets to the inheritors or in charity to other relatives or other causes, the joy of seeing how those assets are being utilised and enjoyed is immense.One also gets to mentor the beneficiary about managing the assetsāproperty or investments.
The process and paperwork is simple and straightforward. There is no need for a will, probate, painful execution process, or multiple iterations. Nor is there a question of verifying and guessing your true intent after your time. I remember the gleam in my mother-in lawās eyes when she handed over cheques from her bank account to all of us on her 80th birthday. We were running from pillar to post to claim the large balances in the single-holder pension account of my deceased father-in-law at the same time.The first step is to list assets and allocate them for your use and for bequest. In many cases, properties are left behind for children. This category of assets is rarely, if ever, sold; it is mostly passed on. Investments such as mutual funds, bonds, stocks and deposits tend to be partly utilised and partly left behind.Make an assumption that you would live for 100 years. Work the math to see what you need. Answer the honest question about how much you need and will realistically spend in your lifetime. If you find a surplus, pass it on. Consider gifting away, even if conservatively. Your assets will be used when your children need it mostāto buy homes, to educate their children, to start a business, to live freely, to upgrade their lifestyles. The tax implications are fairly simple in the Indian context. One can make gifts to adult relatives as defined in the Income Tax Act, without limit, and without any tax implications for the giver and receiver. Gifts to minors and spouse will attract clubbing provisions (the rent and income from the asset will be added to your income for tax purposes).
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