Warm Handoff or Cold Handoff: Should You Give to Family Now or Later?
In our latest video, Daniel Andersen, CFP®, and Trevor Stone, CFP®, EA, wealth advisors at Parkshore Wealth Management, explain the difference between a warm handoff and a cold handoff of your wealth and why giving during your lifetime may be worth considering. Watch the video below, or keep reading for the highlights.
Most people picture leaving wealth to their family as something that happens at the end of life: a will, a trust, a beneficiary designation. It is how most wealth moves from one generation to the next. But it is not the only way, and for some families, it may not be the most rewarding one.
What Are a Cold Handoff and a Warm Handoff?
Daniel and Trevor use two terms to describe the choice. A cold handoff is the traditional path, in which your assets pass to your beneficiaries when you pass away. Other than helping children along the way with something like a first home, it is how most people do it. The trade-off is that you are not around to see what those dollars do for the people you love.
A warm handoff flips that. Instead of waiting, you give some of your wealth during your lifetime, while you can watch and share in the benefit. That might mean helping a child or grandchild pay off student loans or other debt, or creating a launch fund for a business they have long wanted to start.
Who Might Consider a Warm Handoff?
Many of the people we work with have been excellent savers. Over decades, they have built sizable accounts and conservative habits, and for some of them, spending is hard even when the numbers suggest they could do more. If you are likely to pass a good portion of your wealth to the next generation anyway, it is worth asking a simple question: Would you rather see the benefit now?
For someone who is financially secure and not spending all that they have, a warm handoff can be a way to share in the lives of the people they love while they are here to see the difference it makes.
Experiences Can Be a Warm Handoff, Too
A warm handoff does not have to mean writing a check. It can also mean creating experiences with the people you care about, like vacationing with your kids and grandkids. The point is not to hand over cash and say, “Do something with it.” It is to spend time together while you are healthy and able to.
Daniel and Trevor have seen how hard this shift can be for lifelong savers. Even when the numbers support it, funding experiences with loved ones can be hard to commit to when you are used to being frugal.
There is another point to consider. When assets pass to the next generation, the people receiving them are not necessarily the ones who scrimped and saved for 50 years to build them. Advisors joke that the first thing heirs will do is buy a boat or make some equally ridiculous purchase. It may be said in fun, but there is a kernel of truth in it. By creating curated experiences with your loved ones now, you can show them how much you care and include them in some of those assets on your own terms.
What to Weigh Before You Give
A warm handoff is not right for everyone, and the planning behind it is specific to each family. A few things are worth weighing first.
The first is your own security. Once you give assets away, you no longer have them. If you are on the fence about whether you will need those dollars during retirement or for something like a long-term care facility, it is probably wise to hold on to them so that you are confident you will be taken care of through your later years.
The second is taxes. Depending on the type of asset you give, gifting can carry tax consequences. For example, someone who receives an appreciated asset as a gift generally takes on your original cost basis, rather than receiving the step-up in basis that assets passed at death typically get. Larger gifts may also require filing a gift tax return, even when no tax is owed. A tax professional can help you understand how this applies to your situation. Keeping your own estate documents organized and up to date makes the whole picture easier to see.
Finding Your Balance
Warm and cold handoffs are not an either-or choice. Many families do some of both, giving some during their lifetime and leaving the rest to pass at death. The right balance depends on how much you need to feel secure, what you hope to accomplish, and what matters most to the people you love.
If you would like to explore gifting during your lifetime, setting up meaningful experiences, or what a sustainable distribution rate from your portfolio looks like, we invite you to schedule a conversation with an advisor at Parkshore Wealth Management.
This material was written in collaboration with artificial intelligence (Claude) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.
Parkshore Wealth Management is an independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Daniel Andersen, CFP®, a member of NAPFA, the country’s leading professional association of fee-only financial advisors.