Advancement

Advancement Heir Beneficiary Estate Planning Inheritance Will Trust
Advancement refers to a payment made by a parent to a child during the parent's lifetime, intended to go towards what the child would receive as a beneficiary or heir upon the parent's death.
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What Is Advancement?

Advancement is a financial gift or transfer made by a parent to a child during the parent’s lifetime. This advance is intended to be a part of what the child would inherit from the parent’s estate. The purpose of an advancement is often to provide for the child’s needs earlier than the usual inheritance process would allow and may be used to reduce the value of an estate, potentially lowering estate taxes.

Examples of Advancement

  1. Real Estate Transfer: A parent transfers the title of a family home to their child before their death, with the express understanding that this gift is an advancement on the child’s inheritance.

  2. Monetary Gift: A parent gives a significant sum of money to their child for a down payment on a house, stating in writing that it is an advancement from their future inheritance.

  3. Business Shares: A parent gives shares of their business to a child, noting in their will or a separate document that this transfer is an advancement on that child’s share of the inheritance.

Frequently Asked Questions (FAQs)

Q: Does an advancement need to be documented?

A: Yes, to avoid disputes and misunderstandings, advancements should be documented either in writing by the parent at the time of the gift, or noted in the testamentary documents such as a will or trust.

Q: Can advancements affect other heirs?

A: Yes, advancements can impact the distribution of an estate. If one child receives an advancement, the remaining estate is usually divided among the other heirs, unless specified otherwise by the parent.

Q: Is an advancement the same as a gift?

A: Not exactly. While an advancement is a gift during the parent’s lifetime, it is given with the intention of it being deducted from the child’s share of an inheritance.

Q: How is an advancement valued at the time of inheritance?

A: The advancement is typically valued at the time it was given. This value is then deducted from the child’s share of the estate during the final distribution.

Q: Can advancements be challenged in court?

A: Yes, advancements can be contested, especially if there is no clear documentation or if other heirs believe it was unduly taken from their share of the inheritance.

Inheritance: The assets received from someone who has passed away.

Estate Planning: The process of arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life and after death.

Will: A legal document expressing a person’s wishes regarding the distribution of their property after death.

Trust: A fiduciary arrangement allowing a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries.

Heir: A person legally entitled to the property or rank of another upon the latter’s death.

Beneficiary: An individual who receives benefits, profits, or advantages, such as from a will, trust, or life insurance policy.

References

Suggested Books

  1. “Estate Planning Basics” by Denis Clifford
  2. “Make Your Own Living Trust” by Denis Clifford
  3. “The Complete Guide to Planning Your Estate” by Sandy F. Kraemer
  4. “Get It Together” by Melanie Cullen
  5. “Wills, Trusts, and Estates, Ninth Edition” by Jesse Dukeminier and Robert H. Sitkoff

Accounting Basics: “Advancement” Fundamentals Quiz

### An advancement is primarily intended to be: - [ ] A loan to a child. - [ ] An immediate tax deduction. - [x] A part of what the child would inherit. - [ ] A non-deductible gift to charity. > **Explanation:** An advancement is primarily intended to be a part of what the child would inherit, given during the parent's lifetime, and is accounted for during the distribution of the parent's estate. ### What must a parent do to avoid disputes regarding an advancement? - [ ] Estimate the market value of the gift. - [ ] Keep the advancement secret. - [x] Document the advancement in writing. - [ ] Transfer the advancement through a verbal agreement. > **Explanation:** To avoid disputes, the parent should document the advancement in writing, clarifying that it should be considered part of the child's inheritance. ### Could an advancement reduce the total value of an estate subject to taxation? - [x] Yes. - [ ] No. - [ ] Only if it's a certain type of property. - [ ] Only if it exceeds $100,000. > **Explanation:** An advancement can reduce the total value of an estate subject to taxation, potentially lowering estate taxes. ### Who typically receives an advancement? - [ ] A sibling. - [ ] A spouse. - [ ] A business partner. - [x] A child. > **Explanation:** An advancement is typically given to a child, as an early distribution of what they would inherit from the parent's estate. ### Is an advancement the same as a gift? - [ ] Yes, both are unrelated to inheritance. - [ ] No, because gifts are never early inheritance. - [x] No, an advancement is intended to be part of an inheritance. - [ ] Yes, as both do not need documentation. > **Explanation:** An advancement is not the same as a gift because it's intended to be part of an inheritance, although it may technically be a gift given during the parent's lifetime. ### How is an advancement valued? - [x] At the time it was given. - [ ] Every year until the parent passes. - [ ] Only after the parent's death. - [ ] Based on the child's needs. > **Explanation:** An advancement is typically valued at the time it was given, and this amount is deducted from the child's share of the estate during distribution. ### Which document can specify an advancement? - [ ] A mortgage agreement. - [ ] A lease. - [x] A will. - [ ] A marriage certificate. > **Explanation:** A will or other testamentary document can specify that a transfer is meant to be an advancement on the child's inheritance. ### Can advancements be contested in court? - [x] Yes. - [ ] No. - [ ] Only if other heirs agree. - [ ] Only in certain states. > **Explanation:** Advancements can be contested in court, particularly if there is no clear documentation or if other heirs challenge the fairness of the distribution. ### What is the primary intent behind advancements? - [ ] To avoid probate. - [x] To provide for a child's needs earlier. - [ ] To increase estate taxes. - [ ] To hide assets from creditors. > **Explanation:** The primary intent behind advancements is to provide for a child's needs earlier than the standard inheritance process. ### Do advancements need to be equal among all children? - [ ] Yes, always. - [ ] No, it depends on state law. - [ ] Yes, according to federal law. - [x] No, the parent can choose how they give advancements. > **Explanation:** Advancements do not need to be equal among all children; it is at the parent's discretion how they distribute their estate and advancements.

Thank you for exploring the concept of advancements and tackling our comprehensive quiz. Continue expanding your financial and estate planning knowledge!

Tuesday, August 6, 2024
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