Getting an Inheritance Early: Pros and Cons You Need to Know

Receiving an inheritance is often seen as a financial windfall that can provide a significant boost to one’s financial stability. However, what happens when you get that inheritance early, before the original owner passes away? Some families choose to distribute inheritances in advance through gifts, trust distributions, or early property transfers. While this can have several advantages, there are also potential pitfalls to consider.
If you’re in a position where you might receive an early inheritance—or you’re considering giving one—it's essential to weigh the pros and cons carefully. Below, we explore the potential benefits and drawbacks of getting an inheritance early, how it can impact your financial future, and what legal or tax implications you need to consider.
What Is an Early Inheritance?
An early inheritance is when a person receives part of their inheritance while the original owner (such as a parent or grandparent) is still alive. This can happen through:
- Cash gifts: The benefactor gives a lump sum of money to the heir before their passing.
- Property transfers: A home, land, or other valuable assets are legally transferred before the owner's death.
- Trust distributions: If a trust has been set up, it may allow for early withdrawals under specific conditions.
- Business succession: A family business is handed down before the previous owner retires or passes away.
While this can be a great financial opportunity, it’s important to understand the short-term and long-term implications of receiving an inheritance early.
Pros of Receiving an Inheritance Early
1. Financial Support When You Need It Most
Many individuals receive inheritances later in life when they might already be financially stable. However, an early inheritance can provide critical financial assistance at a time when you need it most—such as buying your first home, starting a business, or paying off debt.
For example, if you’re a first-time buyer in Sacramento, an early inheritance could help you afford a larger down payment and secure better mortgage terms.
2. Avoiding Probate and Legal Complications
One of the biggest challenges with inheritances is probate—the lengthy legal process of distributing assets after someone passes away. By giving an inheritance early, the benefactor can:
- Ensure their assets go to the intended recipients without disputes.
- Reduce legal costs associated with probate court.
- Simplify estate planning by transferring ownership while they are still alive.
This can be particularly helpful if the estate includes multiple properties or complex financial assets.
3. Potential Tax Benefits
In some cases, giving an inheritance early can reduce estate taxes. The IRS allows individuals to gift up to $18,000 per year (as of 2024) per recipient without triggering gift tax requirements. Larger sums may be subject to taxes, but proper planning with an estate attorney can help maximize tax benefits.
Additionally, transferring property early may prevent capital gains tax issues for heirs later down the line.
4. Ensuring the Benefactor Sees Their Gift Enjoyed
Some parents or grandparents prefer to witness their loved ones benefit from their inheritance while they are still alive. Whether it's helping a grandchild go to college or assisting a child in buying a home, gifting an inheritance early allows them to see their wealth put to good use.
This can be a meaningful and fulfilling experience for both the giver and the recipient.
5. Avoiding Future Family Disputes
Estate disputes can lead to family tension and legal battles. By distributing an inheritance early, the benefactor can have open discussions about their intentions and prevent future misunderstandings.
This is particularly useful in cases where:
- Multiple heirs have different financial situations.
- One heir might require financial help sooner than others.
- The benefactor wants to prevent disputes over property ownership.
Cons of Receiving an Inheritance Early
1. Potential Financial Mismanagement
A sudden influx of money can be both a blessing and a curse. If an heir lacks financial discipline, they may:
- Spend the money irresponsibly.
- Make poor investment choices.
- Fail to plan for long-term financial stability.
Without proper financial guidance, an early inheritance could disappear quickly, leaving the recipient worse off than before.
2. Reduced Inheritance Later On
Receiving part of an inheritance early means there may be less left in the estate when the benefactor eventually passes away. This could be an issue if:
- The benefactor encounters unexpected medical expenses or long-term care costs.
- The early inheritance was not properly planned, leading to financial strain for the giver.
- Other heirs were expecting a larger inheritance but now receive less.
3. Potential Tax Consequences for the Recipient
While there are tax benefits to early inheritance, there are also potential downsides:
- Large monetary gifts above the IRS limit could be subject to gift taxes.
- Selling inherited property might trigger capital gains taxes.
- Early withdrawals from trusts could lead to penalties or higher income taxes.
Before accepting an early inheritance, it’s essential to consult a tax professional to understand all tax implications.
4. Family Tensions and Unequal Treatment
Early inheritance distributions can lead to resentment or disputes among family members, especially if:
- One heir receives more than another.
- The terms of inheritance were not clearly explained.
- Some heirs feel they were unfairly excluded from the decision-making process.
A fair and transparent approach can help prevent family conflicts in these situations.
5. Loss of Government Benefits
For recipients who are on government assistance programs (such as Medicaid or Supplemental Security Income), receiving an early inheritance could make them ineligible for benefits.
If an heir is relying on these programs, they should explore estate planning strategies, such as a special needs trust, to protect their benefits while still receiving financial support.
Key Considerations Before Accepting an Early Inheritance
If you're considering an early inheritance, here are some important steps to take:
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Discuss with the benefactor: Ensure clarity on their financial situation and intentions.
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Review estate planning documents: Confirm that early inheritance won’t disrupt long-term plans.
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Consult a financial advisor: Get professional guidance on how to manage the inheritance wisely.
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Understand tax implications: Work with a tax expert to avoid unexpected tax burdens.
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Be mindful of family dynamics: Consider how the decision will impact relationships with other heirs.
Final Thoughts: Is an Early Inheritance Right for You?
Getting an inheritance early can be a life-changing opportunity, but it comes with significant responsibilities and potential risks. While it can provide immediate financial relief, reduce estate complications, and offer tax benefits, it can also lead to mismanagement, family disputes, and unexpected tax consequences.
If you're considering an early inheritance in Sacramento, working with the best realtor in Sacramento and a financial advisor can help you make smart decisions—whether you're looking to sell your house, invest in property, or plan for your future as a first-time buyer.
By carefully weighing the pros and cons, you can maximize the benefits of an early inheritance while avoiding potential pitfalls.




