Passing On Your Wealth: 9 Smart Ways to Leave an Inheritance

Last week we covered the do's and don'ts of inheriting money. This week, we're focusing on you, the ones passing hard-earned wealth on to your heirs and favorite charities. Many baby boomers don't have a plan for how that transfer happens, and that gap can create complications and unintended consequences. In fact, according to an Edelman Financial Engines report, only 37% of baby boomers say they currently have a plan in place for transferring their wealth.

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Only about 37% of baby boomers have a plan for passing on their wealth. A little planning now prevents a lot of confusion and conflict later.

Even modest amounts deserve a real conversation. Invested wisely, even an inheritance under $25,000 can grow over time and make a difference in your heirs' lives. No two families are alike, and what's right for you may not be right for your neighbor. Still, here are 9 strategies worth considering no matter your circumstances.

1. Define Your Goals

Start with what you actually want. How do you want to allocate your assets, equally among your heirs or some other way? If the split isn't equal, it's often wise to explain your reasoning while you're living, either in person or in a detailed letter if you'd rather not discuss it directly. And decide whether charitable giving is part of the picture. Planning this out ahead of time helps you make informed decisions and reduces the potential for friction among your adult children later.

2. Balance Communication With Responsibility

Finding the right balance between sharing details and making sure your heirs stay financially responsible is a real tension. Wealthier parents sometimes worry that too much detail breeds entitlement or complacency. Parents with fewer resources may worry more about market swings and outliving their money. If you're in that second camp, it may make sense to wait until after both you and your spouse have passed to transfer wealth. Either way, having a plan in place is essential.

3. Teach Your Children and Grandchildren

Sharing your money values is one of the most powerful ways to prepare your heirs. Take time to teach them about saving, investing, retirement accounts, and taxes. That knowledge will help them make better decisions with whatever they eventually receive.

4. Decide How to Divide It

It's your and your spouse's money, so there's no single right answer. The most common approach is to split everything equally among your adult children and give it to them outright. But a trust may make sense for some families, and you can even set up a trust for one child and not another. Customizable trusts are a valuable tool for controlling how and when wealth is distributed, though they can get complex and costly, so weigh the benefit against the expense.

5. Usually Leave It to Adults, Not Young Grandkids

Leaving your inheritance directly to your adult children is usually the best move, even when some of it is meant to benefit your grandkids. It keeps the family unit steady and helps the little ones indirectly. Handing a large sum straight to very young heirs is often a recipe for spending sprees. If your adult children are responsible, hold steady jobs, live within their means, and save, leave it to them, and your grandchildren will get theirs in time. If your adult children tend to be irresponsible or overspend, then leaving it to the grandchildren may give them a real chance to improve their lives. Just remember that even some people in their twenties aren't mature enough yet to save, invest, and spend wisely.

6. Consider Gifting Now

If you know you have more than you'll ever spend, gifting while you're alive can be a smart move. For 2026, you can give up to $19,000 per year to each child or grandchild (or $38,000 per recipient if you're married and split gifts) without touching your lifetime exemption. Gifting now can shrink your taxable estate and make sure more of your legacy reaches the people you love. Worth noting: the lifetime estate and gift tax exemption rose to $15 million per person ($30 million for married couples) in 2026, so far fewer families will owe federal estate tax, but strategic gifting still has real benefits.

7. Gift the Smart Way

If you're worried an heir might blow through a cash gift, structure it instead. Rather than handing over a check, consider funding a Roth IRA for an adult child who's working, or helping them contribute to their 401(k) indirectly, or opening an investment account in their name (with the clear understanding that it's for retirement, not a new car every year). Depending on their age, helping with a down payment on a first home or covering college tuition can also be excellent options.

8. Give to Charity Tax-Efficiently

If you want to give to charity, you can arrange it after your passing (or the last spouse's passing), or give during your lifetime using one of two tools. A Donor-Advised Fund (DAF) is a simple, tax-smart account that's easy and relatively inexpensive to set up, and custodians like Fidelity and Schwab offer them. You can contribute cash or appreciated assets, take a current-year tax deduction, then decide later when and where the money goes, which lets you be far more strategic. A Qualified Charitable Distribution (QCD) is the other option: if you're over age 70½, you can give directly from your IRA instead of gifting after-tax cash. You're gifting pre-tax dollars, the charity pays no tax either, and with today's large standard deduction it often makes far more sense than giving cash you've already paid taxes on.

9. Review Your Plan Regularly

An annual review of your estate plan is a good habit. Make sure your wills, trusts, beneficiary designations, and powers of attorney are all current. Factor in your heirs' federal and state tax rates, and check for updates in tax law and changes in family dynamics.

Summary

Passing on wealth is a deeply personal endeavor, one that involves both your assets and your family. Take the time to talk through the best approach, whether it all goes to your heirs, all to charity, or some combination. Most people wait until after both spouses have passed and then divide what's left among responsible adult children. But if you're fortunate enough to have more than you'll ever need, gifting the annual amount is close to a no-brainer, since it reduces your estate and can still be done on your terms. So get savvy about it: have open conversations with your family, line up your team of professionals, and make the eventual transfer a smoother ride for everyone.

Next Steps for Your Retirement

Ready to take the next step? I'd love to help you build a retirement plan, investment plan, and tax strategy.

Visit us at CapitalWealthGroupSC.com to see how we work with the 50-to-60 crowd. If you're ready to dive into your numbers, you can schedule a 30-minute Introductory Call right here.

(Next week, we'll dive into the 10 crucial estate planning documents you need.) Let's make sure you're on the right track for the retirement you want.

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Full Podcast Transcript

Welcome to the Retirement Guide Podcast. I'm your host, George Jameson, the owner of Capital Wealth Group, a fee-only advisory firm. Whether you're nearing retirement or already retired, join me each week as we explore the world of retirement planning and equip you with the knowledge and tools you need for a successful retirement.

So let's get started. Last week, we explored the do's and don'ts of inheriting money. Today, we're focusing on you, the baby boomers who will be passing on your hard-earned wealth to your heirs and favorite charities. Many baby boomers do not have a plan in place when it comes to transferring their wealth to their heirs. This lack of planning can lead to complications and unintended consequences. According to an Edelman Financial Engines report, only 37% of baby boomers said they currently have a plan in place for transferring their wealth. This statistic highlights the need for proactive and thoughtful planning.

Even modest amounts of money are worthy of meaningful discussion. If beneficiaries invest wisely, even an inheritance below $25,000 can grow over time and make a difference in your heir's lives. No one family is exactly the same, and what's best for you and your family's situation may not be what's best for your neighbor's family. However, here are some strategies and suggestions you should consider no matter your circumstances.

Number one, defining your goals. First, consider your goals with your inheritance. How do you want to allocate your assets? Will it be split equally to your heirs or some other way? If it's not equal, it may make sense to explain it to your heirs before you pass, or in a detailed letter if you do not want to discuss it while you are living. And do you plan to include charitable giving? If so, planning ahead can help you make informed decisions and reduce the potential for animosity among your adult children.

And number two, balancing communication and responsibility. Finding the right balance between sharing details with your heirs and ensuring they are financially responsible is crucial. It's natural for parents to have concerns. Wealthier parents may worry that giving too much detail might lead to irresponsibility, laziness, and entitlement. On the flip side, parents with fewer resources may be concerned about market uncertainties and outliving their money. If you find yourself in this camp, it may be best to wait until after you and your spouse have passed to transfer wealth. However, even in this scenario, having a plan in place is essential.

Number three, teaching your children and grandchildren. Sharing your money values and financial principles is a powerful way to prepare your heirs for their inheritance. Take the time to educate them about saving, investing, retirement accounts, and taxes. This knowledge will empower them to make better informed financial decisions in the future.

Number four, splitting your wealth. It's you and your spouse's money, so there really is no right or wrong answer. However, the most common way is to split up everything equally among your adult children and give it to them outright. However, a trust may make sense for some. You can even do a trust for one adult child and not the other. Customizable trusts can be a valuable tool for managing the distribution of your wealth, although they can get complex and costly.

Number five, leaving inheritance for grown-ups only, at least most of the time. Leaving your inheritance directly to your adult kids is usually the best move, even if some of it is meant for your grandkids. It keeps the family unit steady and indirectly helps out the little ones. Let's face it, leaving a large chunk of money to youngins is a recipe for spending sprees and entitlement. If your adult children are worthy of all you worked for, have steady jobs, don't overspend, save themselves, and are responsible adults, then I suggest leaving them the inheritance. Your grandchildren will get theirs in time. However, if your adult children are selfish, overspend, or worse, then by all means, leave it to your grandchildren. At least they will have a chance to better their lives financially. But just be careful, because even some 20-year-olds are not often mature enough to make the right decisions when it comes to saving, investing, and spending appropriately.

Number six, gift your money now, at least maybe. In 2023, you can gift up to $17,000 annually, or $34,000 if married, to each child and grandchild without it going against your lifetime exemption. Consider gifting now, especially if you know you have more than you'll ever spend in your lifetime. It can help minimize post-mortem taxes and ensure your heirs receive more of your legacy.

And number seven, how to properly gift now. So if you fit in this camp of having more money than you'll ever spend in your lifetime, and you want to start gifting the $17,000 or $34,000 to each adult kid and grandkid but are worried they'll blow through the money on dumb things, let me give you some suggestions. Rather than handing them over cash or a check, consider funding a Roth IRA for adult children who are working. This promotes long-term financial planning. Additionally, assisting them with their 401k indirectly can be a wise move, or even opening an investment account in their name. Make sure they understand that this account should not be touched until their retirement age, and it's not to buy them a new BMW every year. A couple other reasonable ideas, depending on their age, may be a down payment on a first home or college tuition if they're in college and it's not already paid for.

And number eight, giving to charity. If you want to give some or all of your wealth to charity, you can set it up to go to your favorite charities after your passing or after the last spouse's passing. However, if you want to give some before your death, consider these two options. The first one's called a Donor-Advised Fund, or DAF. DAFs are simple, tax-smart investment solutions for charitable giving. It's really easy to set one up and has relatively low costs compared to endowments. Schwab and Fidelity offer DAFs, among other custodians. You can contribute cash, securities, and appreciated assets. You will get a current-year tax deduction, but you don't have to give the assets to charity in the same year. You can invest the funds, and it's up to you when and how much you want to give and to what charities. When you are ready to give a gift out of the DAF, it's really easy to do, and you can pretty much give to any certified charity. This allows you to be much more strategic about your giving decisions. Schwab's administration cost, for example, is 0.60% on the first $500,000 and 0.30% on the next $500,000.

The second option is called a Qualified Charitable Distribution, or QCD. They can provide immediate tax benefits and make a positive impact. If you are over the age 70 and a half, instead of gifting after-tax cash, it makes sense for most of us to gift directly from our IRAs. This way you will be gifting pre-tax monies versus after-tax monies, and the charity or church you are giving to doesn't have to pay the taxes either. With the current large standard deductions, it makes a lot more sense for you to gift using your IRAs versus cash that you have already paid taxes on, because most of us will not get a deduction.

And number nine, the importance of regular reviews. An annual review of your estate plan is a good idea. Make sure your wills, trusts, beneficiaries, powers of attorney, and other important documents are all up to date. Factor in your heirs' tax rates, both federal and state, to ensure your plan remains effective. Also check for updates in tax laws and changes in family dynamics.

So to summarize, remember, it's a deeply personal endeavor involving your assets and your family. It's you and your spouse's personal choice. So taking the time to discuss the best way to transfer your wealth, whether it's going all to your heirs, or all to charities, or some combination of both, is crucial. While most will wait until after both spouses have passed and then split up what's left to your adult children, assuming they are responsible adults. If you are fortunate enough to have more money than you'll ever need, gifting the annual gift amount is a no-brainer. It reduces your estate and can still be done in a manner of your choosing. So it's time to get savvy about passing on your hard-earned wealth. Have open conversations with your family, get your team of professionals lined up, and let's make your eventual transfer a smoother ride for you and your heirs.

That wraps up today's episode. Next week, we'll be diving into 10 crucial estate planning documents you need. Have a great day. Thank you for tuning in to this episode of The Retirement Guide. If you enjoyed this episode, please subscribe and leave a five-star review to help others discover the show. For questions, ideas, or to discuss your retirement plan, reach out to me, George Jameson, at Capital Wealth Group. If you'd like a free retirement review, visit our website at CapitalWealthGroupSC.com to learn more. Thank you for listening. Stay tuned for more insightful retirement planning in future episodes.

And now for the disclaimer: The information discussed in this podcast is for general explanations and education only. It is not tax, legal, or investment advice. Before considering acting on any information heard here, first consult with your tax, legal, or investment advisor. Thank you and have a great day.