- Date : 06/09/2022
- Read: 3 mins
Transfer wealth to grandchildren safely!
Wealth transfer is an issue of growing importance due to its many benefits. However, these financial advantages are not without their share of complications. For you to transfer wealth to your grandchildren or any other family member, you first need to be aware of how the wealth transfer works.
Understanding wealth transfer with an example
Let’s say your father lives a financially independent life with the pension that he receives. Every month, he saves up as much amount as he can after catering to his basic needs and keeping aside money as an emergency fund. He has a recurring deposit account where he invests the money that he manages to save every month. He also holds some retirement corpus and some tax-saving bonds. Now, your father wants his wealth to be bestowed upon your children. In this situation, there are several factors that he must consider. One, how to pass the corpus in a way that favours his grandchildren, and two, how to keep it growing till the time your children become adults.
Considering the given situation, the last way for wealth transfer should be as a gift. This is because when a huge amount is transferred as gifts, it requires the recipients to pay gift taxes from whatever they earn. Another reason why a gift is a bad idea is that it cannot be taken back even in the face of a financial emergency. Thus, it would take away your father’s financial security.
In this case, we can safely say that a will is suitable for the transfer of wealth from your father to your children. This would not snatch away your father’s access to wealth if he ever feels the need to revoke it during his lifetime. Besides this, you would also need to make some required changes in your father’s investment portfolio. It is advisable to invest your father’s saved-up funds in equity fund SIP and not in a recurring deposit. This is because investing in an equity fund would generate a higher corpus over the upcoming years. The increased corpus, in turn, could take care of your children’s higher education or other essential needs. Your family may also need to pay capital gains tax if the wealth transfer is not made wisely.
Related: How to choose an equity mutual fund
Thus, it is essential to keep these factors in mind before making a well-informed wealth transfer. It is also advisable to discuss the process with the recipients. However, if they are minors, make sure to do it in a way that is appropriate for their age. Ignorance on your part can have a negative impact and be the root of many hassles for the recipient or other family members.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.