When Benefiting Your Heirs, Timing Could Be Everything

Mother and daughter

In the area of Elder Law and estate planning, there are two schools of thought of when your heirs should benefit from your estate. The more traditional method of bequeathing the labors of your life to your heirs is through inheritance when you go on to your final reward. A more recent trend is for those with greater wealth than usual to begin gifting money to their heirs, especially if those heirs are struggling financially for whatever reason.

Whether discussed in traditional broadcast news or online, the high cost of living in areas like the New York tri-state area for the younger generations is a popular topic. Whether living as modestly as possible or indulging in more conspicuous consumerism, the costs for housing, food, health insurance, and transportation in New York places a heavy burden on the incomes of recent college grads and those still working to establishing themselves. While talk of a ‘brain drain’ in terms of recent grads, many young people are leaving the region to maximize the value of every dollar earned.

For older generations who have larger than average financial reserves, a new push has begun that seeks inheritances given sooner rather than later, to provide financial breathing room to heirs when they may need it most. As with any idea, there are pros and cons. The apparent ‘pro’ is that older people who are well off can help their heirs now and get some satisfaction out of doing so. An admirable idea and for those who can afford to, we support their choices.

However, the ‘con’ of this approach is that once any money or asset of value is given, it is no longer available to the benefactor should an emergency come up that wipes out what money reserves they have for their golden years. While this requires a potentially negative view of the future, it is still a very relevant concern. The ‘what-ifs’ are not difficult to imagine:

  • A catastrophic illness that exceeds insurance coverage
  • Potential stock market upheaval that could devastate investments
  • Natural disasters that could cause damage or destroy a primary residence

These are but a few of the unforeseen circumstances that could crop up when all is going smoothly.

Another reality to consider as to the timing of benefiting your heirs is the Medicaid Penalty Period. In 2019 in New York State, if you suddenly needed fulltime facility care in a nursing home, you can only have up to $15,450 in assets to have Medicaid cover the costs. Any assets over that amount are expected to be used to offset expenses before Medicaid begins covering costs. However, if you gave away any assets to heirs in the 60 months before your requiring nursing home care, a penalty period can occur when you are still expected to cover the costs before Medicaid stepping in. It is in these cases that an irrevocable trust could help along with the assistance of an Elder Care attorney to ensure, before making any gifts, that any penalty period is reduced as much as possible.

While parents offering financial assistance to their children and grandchildren is a personal choice, any potential impact for the future should be considered. Prudence and pragmatism are muscles we always need to flex, regardless of any emotional pull to be more liberal with your decisions. But with seniors living longer lives due to better medical care and a trend toward healthier lifestyles, you must ensure that a potential financial strain is not created for the future to help your loved ones today.