An estimated $124 trillion in wealth held by older generations is expected to pass to heirs or charities over the next 20 years. Rather than wait until after their death, some retirees are considering gifts during their lifetime, when children and grandchildren may have a more immediate use for the money.
A Morning Consult survey found that both parents and adult children tend to favor using inheritances to pay down debt, buy a home or prepare for retirement, rather than simply waiting to inherit later. David Blanchett, head of retirement research at Prudential, said money can be more useful to people in their 40s and 50s than when they reach their 60s or 70s. Giving while alive also lets donors see how the money affects recipients’ lives.
For retirees, however, transferring wealth early is not just an emotional decision. Longer life expectancies mean many people need savings to last into their 80s and beyond. Some hesitate because they worry they may need the money later and will not be able to reclaim it. Michael Conrath, chief retirement strategist at JPMorgan, says estate planning and retirement planning are linked both financially and psychologically.
Three accounts can separate retirement spending from gifts
Conrath recommends dividing retirement assets by purpose into three accounts: stable, variable and legacy. The stable account covers recurring essentials such as rent, food, utilities and medical expenses. The variable account is for discretionary spending, including travel, hobbies and entertainment. The legacy account is set aside for future gifts or charitable donations.
Once essential expenses and optional spending have clear funding sources, retirees may find it easier to judge whether they can afford to give money away early. This approach does not eliminate the risk of outliving one’s savings, but it separates day-to-day funds from assets intended for family, which may ease concerns about running short and put a complete halt to planning.
Gifts can have tax implications and timing benefits
For donors, transferring some assets before death may reduce the value of a taxable estate and affect state or federal estate taxes. Under 2026 rules, an individual can give up to $19,000 per recipient each year. A married couple can give a combined $38,000 to one recipient, generally without triggering a gift-tax filing requirement or using any of their lifetime exemption.
Donors may also consider giving appreciated stock to eligible charities or transferring it to heirs as part of managing capital-gains tax exposure. Payments made directly to a medical provider or educational institution for someone else’s medical expenses or tuition are not subject to the $19,000 annual gift limit. Another option is to establish or contribute to a 529 education savings plan for a child or grandchild.
For recipients, the money can arrive when it is needed for housing, education, debt repayment or retirement savings. Under federal tax law, ordinary gifts generally are not treated as taxable income to the recipient, though appreciated stock has separate tax treatment. Receiving assets directly may also avoid some of the delays and legal steps involved in probate after the donor’s death.
Start with smaller gifts if the plan is uncertain
Retirees who are not ready to transfer a large share of a future inheritance can start with smaller gifts, Blanchett said. They might help an adult child with a home down payment or day-care costs, or cover part of a grandchild’s college tuition. A modest cash gift or an additional contribution to a 529 account can also be a first step.
This lets family members receive help when they need it while giving them a chance to learn to manage money they may inherit in larger amounts later. Donors do not have to decide the fate of their entire estate at once; they can plan separately for lifetime support and assets to be passed on after death.
Long-term care costs remain a key consideration
Giving assets early should not come at the expense of retirement security. People who expect Medicaid to cover long-term care need to pay close attention to its asset-review rules: monetary gifts made during the five-year look-back period may affect eligibility. With care costs rising in recent years, retirees should identify how they would fund potential long-term care before deciding how much they can give away.
Pam Krueger, founder and chief executive of Wealthramp, cautions that gifts should not leave donors short of money later in life. For many families, a more measured approach is to protect the donor’s financial security first, then decide what can be given during their lifetime and what should be left for transfer later.