Here’s the full scoop on how to think about inheritance planning for your children and grandchildren!

Early on in our retirement planning journeys, the focus is relatively simple:
Save enough so you don’t run out of money!

But once you have decided that your retirement is in a good position, another question naturally emerges:

“What should happen with the money that’s left over?”

For many families, the goal isn’t simply maximizing wealth. It’s making thoughtful decisions about how that wealth benefits the next generation.

And when it comes to leaving money to children, there isn’t a single “right” answer. But there are a few principles that tend to lead to better outcomes.

Put on Your “Oxygen Mask” First

Just like the flight attendants tell us every time we board a plane, in the event of cabin depressurization, oxygen masks will fall from the ceiling and you need to put yours on before helping the person next to you.

The same logic applies to legacy planning:

Your retirement security comes first.

Many parents and grandparents feel an instinct to preserve assets for their children. But retirement can last 30 years or more, and financial flexibility becomes incredibly valuable as life unfolds.

Healthcare costs, market volatility, tax changes, and longevity can all affect long-term spending needs.

A thoughtful legacy plan starts by ensuring that your own lifestyle and security are fully protected from a potentially lengthy retirement.

Only after that foundation is solid should inheritance planning become a primary focus.

Recognize That Inheritance Is More Than Money

Many parents assume their children will benefit most from receiving the largest inheritance possible.

But research and real-life experience often show something different.

Children tend to benefit more from:

Financial education
Healthy money habits
Gradual exposure to wealth
Clear family values around money

In other words, the preparation matters as much as the inheritance itself.

For some families, that means having open conversations about money and expectations long before assets are transferred.

Should You Gift During Your Lifetime Instead of Waiting?

One question that comes up frequently is whether it makes sense to wait until death to transfer wealth.

For some families, lifetime gifts can be more impactful than inheritances later.

Helping with:

a first home purchase
education costs
starting a business
or supporting grandchildren

This can often create more meaningful benefits than money received decades later. After all, your children are likely in a position to benefit most from the money in their 30s and 40s than in their 50s and 60s.

That doesn’t mean that you give away your money recklessly.

But thoughtful lifetime giving can allow parents to see the positive impact of their wealth while they’re still around.

Another benefit of lifetime gifting is that it can help you reduce the value of your taxable estate. This is especially impactful if you believe that your future estate could be subject to estate tax at the state or federal level.

My clients who have sizable estates often make lifetime annual gifts to their children and/or grandchildren to lower their taxable estate.

One important note for retirees in Washington and Oregon:
Many people try to keep their annual gifts under the federal annual exclusion amount (currently $19,000 per person, per recipient). This is the amount you can gift without having to report the gift to the IRS and reduce your federal lifetime estate and gift tax exemption.

However, this rule only applies to the federal exemption, which is expected to be roughly $15 million per person in 2026. Because that exemption is so large, very few households will ever come close to exceeding it.

In contrast, Oregon and Washington have much lower estate tax exemption levels, which many families can realistically reach. Oregon currently has a $1 million estate tax exemption, while Washington’s exemption is approximately $3 million per person.

Importantly, neither Oregon nor Washington has a combined estate and gift tax exemption. They only impose an estate tax, not a gift tax. As a result, lifetime gifts do not reduce your state estate tax exemption.

This means that exceeding the $19,000 annual exclusion simply reduces your federal exemption, not your Oregon or Washington exemption. For most retirees, that federal exemption is unlikely to ever be fully used anyway.

In practical terms, exceeding the annual exclusion amount is usually not a major issue; in fact, it can be a powerful tool for reducing your taxable estate in a low-exemption state that imposes estate tax. The primary inconvenience is the requirement to file an IRS Form 709 to report the gift.

Be Intentional

Another important consideration is how money is left, not just how much.

Some parents prefer simplicity and leave assets outright.

Others choose more structured approaches, such as trusts, that allow assets to be distributed over time or under specific circumstances.

There’s no universal answer here. The right structure often depends on:

the age and financial maturity of the children
family dynamics
asset types
tax considerations

What matters most is aligning the structure with your intentions for the wealth.

Taxes and Asset Location Can Matter More Than You Think

Another layer of inheritance planning involves which assets are ultimately passed to heirs.

Different assets are taxed very differently when inherited.

For example:

Brokerage accounts and real estate often receive a step-up in cost basis at death.
This means that your beneficiaries’ cost if they are to sell this asset becomes the market value on your date of death, which wipes away any previously built-up capital gains.
Traditional retirement accounts can create taxable income for heirs when withdrawn, given the current inheritance distribution rules.
Most non-spouse beneficiaries have 10 years to fully liquidate retirement accounts that they inherit, which can be burdensome from a tax perspective.
Roth accounts provide tax-free distributions for beneficiaries.

Because of this, the type of asset children inherit can matter just as much as the amount.

Thoughtful coordination between investment strategy, tax planning, and estate planning can meaningfully affect the long-term outcome.

The Goal Isn’t Just Leaving Money

For most parents, the goal isn’t simply transferring wealth.

It’s helping their children live stable, meaningful lives while preserving family values and financial responsibility.

That’s why the most thoughtful legacy plans usually focus on three things:

protecting your own financial independence
preparing children to handle wealth responsibly
structuring assets in a way that aligns with your intentions

When those pieces come together, inheritance becomes less about dollars and more about impact.

Have any questions about what you’ve read? Let’s talk about them!