When it comes to transferring wealth, most people plan to pass their assets down to their heirs when they die. But there is another approach worth considering, one that would allow you to witness the impact of your legacy: giving while living.

Though this strategy is less common, gifting assets while you’re still alive can offer meaningful advantages for both you and your heirs.

From a practical standpoint, it allows you to maintain control over how the money is used. It’s also an opportunity to share your values and long-term vision with your heirs, as well as witness how they handle the assets. At the same time, your heirs can learn to manage your family’s wealth and become comfortable with an inheritance while they still have your guidance, putting everyone in a better position for the future.

“I honestly believe you get more personal benefit from giving during your lifetime, if you can do it,” says Catherine Walker, head of Trustee and Philanthropic Solutions at RBC Wealth Management–U.S. “When you approach transferring your wealth in this way, you can see the impact and the happiness it brings.”

How to start lifetime gifting

A good starting point for any “giving while living” strategy, Walker says, is to gift a small portion of your wealth to a loved one or charity now. Individuals can give up to $19,000 annually—$38,000 for married couples—to an unlimited number of beneficiaries without incurring taxes. Those who choose to give above the annual exclusion amount may use some of their lifetime federal gift tax exclusion. However, if gifts exceed the lifetime exclusion, then the federal gift tax would be imposed. Consult your tax advisor for specific guidance.

Some lifetime gifts—charitable giving, and direct educational and medical expenses—are exempt from annual gift and estate taxes, and there is no limit to how many such gifts you can make. Payment of a grandchild’s tuition directly to a college or writing a check to a hospital for surgery are just a few examples.

For those who want to make a large charitable gift or provide long-term family involvement, establishing a private foundation or donor-advised fund may be appropriate.

Using trusts and other strategies

Charitable giving isn’t the only way to pass on assets during your lifetime. You can also use gifting to help your heirs kickstart their own long-term wealth planning.

“With this approach, you’re giving when your beneficiaries are more likely to need the help,” Walker says.

Indeed, in a recent RBC Wealth Management survey of 1,500 high-net-worth Americans, nearly all (96 percent) millennial and Gen X respondents said receiving an inheritance now would be more impactful than in 20 or 30 years.

But transferring assets doesn’t have to mean giving up control. There are several tools available that still allow benefactors to dictate how gifted assets are used during their lifetime, including:

• Revocable trust: Also known as a living trust, this option enables you to retain full control of the assets. It can include instructions for your beneficiaries, and you can name a trustee in case you become incapacitated. Since the trust is revocable, you can update it any time. When you die, the trust becomes irrevocable and can no longer be changed.
• Irrevocable trust: This trust cannot be modified or revoked once established, making it a useful tool to transfer wealth out of an estate and minimize estate taxes. Gifts are made to the trust instead of directly to heirs. Distributions from the trust to beneficiaries can be made incrementally or as a lump sum, depending on your wishes.
• Family limited liability company (FLLC):  Like the name suggests, a family LLC is a business entity specifically designed for families to manage and protect their assets, as well as enable efficient tax planning. You can maintain governance by retaining the controlling interests in the FLLC, while gifting interests that represent equity to your heirs.
• Custodial account: Parents of young children have the option of transferring money to a custodial account, which is owned by the child but essentially governed by the parents until the child comes of age. That age differs by state, but typically ranges between 18 and 21. 

By making lifetime gifts, you can get a sense of how your beneficiaries will steward the family wealth. Based on what you learn, you can adjust your wealth transfer plans as needed, Walker says.

Barriers to giving while living

With an estimated $124 trillion expected to be passed down to heirs and charity by 2048, according to Cerulli’s U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2024 report, the question of how and when to transfer assets is one that many American families will have to grapple with.

However, the RBC Wealth Management wealth transfer survey found that only 11 percent of surveyed baby boomers have begun to transition their wealth to the next generation.

There are a number of barriers to giving while living, one of which is simply failing to take action. “Lots of people think about it, but pulling the trigger can be really tough,” Walker says. “If they do, it’s often for a specific reason, such as establishing a 529 plan for a grandchild’s education, or making a gift for a house down payment.”

As much as parents want to leave a legacy of financial security for their family, they’re also concerned about their own quality of life. In fact, the RBC Wealth Management survey found that 75 percent of those planning to leave an inheritance would rather use their wealth to enjoy life now—even if that leaves less for their heirs.

“For many retirees, it’s a cash flow concern,” says Bill Ringham, director of Private Wealth Strategies at RBC Wealth Management–U.S. “Before we encourage anyone to do lifetime gifting, we want to make sure their retirement goals and objectives can be met.”

The key is to find the right balance. A retirement income plan can help give you confidence that your own needs will be met, as well as show you how much money you’d have over time if you started transitioning wealth.

Giving the gift of time

Despite the considerable value of family wealth expected to transfer over the next few decades, the RBC survey revealed that many heirs receive little information and support before, during and after the inheritance process. In fact, only 39 percent of those leaving an inheritance have provided guidance or direction to their beneficiaries about their intentions for the wealth.

The survey also found that heirs want to respect the wishes of those leaving them an inheritance, and their top concern is being financially responsible with what they receive. But in order to do that, they first need to understand what they’re inheriting and are looking for direction on how to carry on their family legacy.

“It’s important for heirs to get comfortable with the idea of inheriting,” Ringham says. “Prepared beneficiaries are in a much better position to be good stewards of the money they inherit.” A “giving while living” strategy is really a gift of time—it offers you time to explain your values and wishes, to educate your heirs on managing the assets and to answer any questions that may arise in the process.