An advancement is a gift of property or money to one's child or heir before the giver's death, with the expectation that the executor will deduct the gift's value from the total inheritance.
How Advancement Works
An advancement works by giving a beneficiary a portion of their inheritance before the decedent's death. This portion is deducted from the final inheritance. The executor awards the remainder of the inheritance after the decedent dies. Advancements are best done close to the giver's expected death, as estate amounts can drastically change over time.
Because estates may gain or lose value, the amount of each individual inheritance may change as well. In some situations, this could mean that an advancement given years before the decedent's death would amount to the full inheritance or perhaps have a value that exceeded that individual's inheritance. If the amount of the advancement is more than the amount later determined to be the true inheritance value, the inheritor does not need to repay the difference. Whatever is left of the estate may be split between any other beneficiaries.
The individual who receives an advance on their inheritance is also subject to pay taxes on it if the gift exceeds a certain amount. This amount is pre-determined by law if you are single or married. To ensure that the recipient does not double collect an inheritance and that the executor distributes and accounts for all assets properly, the decedent and prospective inheritor should sign a contract or receipt well before death.
Example of Advancement
An example of advancement would be if Joe decided he wanted to do some home renovations but would rather not take out a loan from the bank. Instead, Joe went to his father, Ted, and asked him for an advancement on his inheritance. Ted was in his 80s and had a will endowing each of his three children $50,000. Ted cared about his son and wanted to see Joe make the improvements to his house. He granted his request.
Joe was able to get an advancement on his inheritance in the amount of $25,000. Joe spent the entire $25,000 and put a new roof on his house. Ted, however, lived quite a bit longer than anyone expected—years past his expectancy, in fact. As a result, he incurred tens of thousands of dollars in medical bills. Because he incurred these unexpected fees, the value of his estate dropped dramatically.
Upon his father's death, Joe went to the reading of his father's will. Joe was surprised to learn that while originally he was expecting to receive $50,000, he would only receive $5,000. While Joe was grateful, he didn't understand why the amount of his inheritance changed so much. Over the last years of his life, Ted had paid $60,000 out of his estate to medical bills and living expenses. This dropped the amount each sibling would inherit to $30,000. Ted's estate had advanced Joe $25,000 out of his inheritance years before. He now was paid the remainder.