Gifting To Kids: Now Or Later?

Most parents plan on leaving unspent money and assets to their kids at death. But what if there’s a better way to do it? What about giving money to them right now so they can create a better, richer life?

We talked to Roxanne, a friend and client, who did exactly that. Here’s her story, along with expert tips and 6 essential questions to ask yourself before you gift.

Roxanne, tell us a little bit about the situation with your kids and how you started gifting.

Roxanne: My husband and I have two adult sons in their mid-30s. Both are married. One son has two preschoolers. The other has an entire menagerie of cats, but does not plan to have children. While they are generally able to keep up with the bills, they are both, along with their spouses, in teaching or social work professions, which means they’re not in a position to make lots of money in their careers. That puts them at a disadvantage given how expensive everything has become nowadays. Our intent was never to give them a lifestyle they can’t afford or that doesn’t make sense for them, but we really just wanted to help them create a better life in a way they might not be able to do on their own.

So what did you decide to help them with?

Roxanne: My older son and his wife had a #1 goal of buying a house and starting a family. We gifted them $40,000 in cash to cover a large portion of their down payment once they found the right property; they also contributed to the down payment.  We pulled the money from our joint brokerage account. Since this came from our non-retirement account, there were no income taxes we needed to pay on the withdrawal. We also did this in a way that did not generate any capital gains taxes. Once they were in the house, their family had expanded with the addition of two children, and they had saved up money of their own, we gave them an additional $150,000 to use for renovations. They really needed to update the house (it’s old and in a big city) and make it comfortable for what is now a family of four. This was decided after two years of them looking unsuccessfully for a larger, but still affordable, house during COVID.  They came to the conclusion it was better to keep their low-rate mortgage and renovate than to move to a more expensive house with a higher mortgage rate.  In addition, I have also helped them with daycare costs so they can work. I have been giving them $1,000 per month (school year only) for about 5 years. By the way, that only covers part of the daycare costs! It’s so expensive, but by continuing to work, they save more for retirement, get valuable medical and other benefits, and increase their eventual Social Security and pension benefits.

For my younger son and his wife, we also gifted $40,000 a few years ago to help with the down payment on a first home. He and his wife are now looking for a larger home with land, so we gave them an additional $150,000 over a two-year period to invest until they run across the right property. To come up with that money, we drew funds from our joint brokerage account and also pulled from a Roth IRA account, so there are no income taxes due for the withdrawal. We also stayed within gifting exemption amounts so there are no estate or gift taxes due.

What was your thinking? Why now? Why not later?

Roxanne: Our goal was to help them build a better life now. We talked it over with our financial advisor and we were confident that between my husband and me, we had enough for our retirement. We both will have Social Security benefits, plus we have government pensions, our own retirement savings, and an almost paid-off mortgage. We’ve already decided that whatever we leave will go to our kids. Isn’t it better for them to get some of that now?

My husband and I are still working, although we expect to retire at the end of 2024. I’m 69; my husband is 68. It’s easier psychologically to give them money now because we still have money coming in. It might be harder to be as generous if we were totally retired and on a tighter budget.

By the way, the in-laws are helping out too. They keep the grandkids twice per week and provide other hands-on support (they live physically closer to the grandkids), which helps to keep daycare costs down.  They became the “daycare” full-time when the preschools were closed due to COVID.  They also contributed about $80,000 to the renovation costs from money they received from a parent’s estate.

I have no doubt that by helping now, we are enabling them to have a family and build a good life for the grandkids. Without our help, it would be very difficult to accomplish.

What thought went into evaluating how to gift? Was it about WHAT they wanted to use the money for? Or HOW they handled money in general?

Roxanne: We all agreed in advance that we would give them money for a specific purpose. We talked together about how they would use the money. For my older son and his wife, their #1 goal was to afford their own home. They were deserving and hardworking but couldn’t come up with the down payment on their own. We helped them with a down payment to buy their first house that included a rental unit. They were able to save money compared to what they were paying in rent. A few years later, we gave them the second gift to fix it up and add a guest room we could use when visiting. For my younger son, it was money to make a down payment on a future house with land.  For the younger son and his wife, we decided to provide them with the same amount as the older son now even though they have not yet identified a property.  We wanted to be done with large gifting before we retired and we trust them to make the right decision moving forward.  Plus, we will be there to help guide them, if needed.

Both your kids are married. How did their spouses factor into this? Did you gift to your kids or to kids and spouses?

Roxanne: We made gifts to both our kids and their spouses so we could give more and stay under the gifting exclusion amounts. (In 2024, each person can gift up to $18,000 to as many people as they want in qualifying gifts without paying tax or needing to report the gift. See our gifting tips below for more information on how this can add up when giving to multiple kids and their families).

Was it important to equalize the amounts for the two kids?

Roxanne: We did try to make sure the gifts for housing were roughly equal. I did not offer to pay for daycare for the cats!  My children are very different and have different personalities and lifestyles, but I’m proud to say that both are very hardworking and loving husbands, brothers, sons, and fathers (even to cats).

How do you stay in touch with them and keep an eye on how they are doing?

Roxanne: Our gifts to them were very purpose-driven. There was never any doubt that they would use the money for the purpose intended. Plus, I am available to give them ongoing support and help in reviewing their budgets, helping them with their money management, and so forth. That’s always been one of my strengths.  The younger son and wife live fairly close to us so we get to see them regularly.  We are fortunate that our sons enjoy keeping us in their lives.

What advice would you have for other parents?

Roxanne: In my job, I work with seniors at all levels of income. I would encourage parents to gift now if they have the means to do so. Share the wealth and help the next generation make a better life for themselves. Talk to your financial advisor about where you stand and how you can help. There are many great ways to help and support the next generation that don’t require money. If you live to 90, like many people now expect to do, your kids may not inherit until they are 65 or 70. Wouldn’t some of that largesse be more meaningful if they receive it while they are struggling to raise kids, pay for college, or save for retirement?

I would also like to add that probably because of my current profession working with seniors’ finances, I don’t mind talking about money.  After all, it’s only money!  I reached out and worked with the in-laws of both of my children and told them how I felt about helping our children get a good start.  Fortunately, both in-laws felt similarly to me and also had the means to help out.  Having them on board was instrumental in the success of our efforts.

       Thank you, Roxanne, for sharing your story with us!

More expert tips for better gifting: 6 questions to ask before you write that check

Parenting is all about preparing your kids for what lies ahead, whether that means teaching them good manners, the value of hard work, or helping them pay for a college education or that first apartment.

For the parents fortunate enough to be able to help kids out financially, it’s not aways an easy decision. How to lend a hand while still teaching the value of independence and the sense of pride in accomplishing something on your own? And is it better to help now, or later?

An astonishing 47% of parents still help their adult children out financially, according to a new study. So before you reach for that checkbook, here’s 6 essential questions to ask yourself.

Can you afford it? This seems like an obvious question, right? But it’s not. You really shouldn’t be helping your your kids financially, unless it’s a matter of life or death, if you are not already well-situated for the future. If you’re not sure, talk to your financial advisor or test your retirement resilience using an online calculator.

Am I helping or enabling? Sometimes, giving money to your adult child is the worse thing you can do to them. It’s great to help. It’s not great to enable, and it’s not always easy for parents to see the line between the two. Don’t “gift” your kids a lifestyle they could never afford on their own. A fancier car may not make the cut. But do help when it’s a matter of health, safety, or quality of life like affording medical care, higher education, or critical legal advice, or as in Roxanne’s case, buying that first house or helping pay for day care.

Do I really know my child? Roxanne’s gifting was a success because everyone agreed on what the money was to be used for, and her kids are financially responsible. But be honest with yourself. If your kids blow money as soon as they get it, consider holding off on monetary gifts until they show more impulse control. Also, if your kids are in a shaky relationship, understand the dynamics before you gift.

Am I sticking within gifting limits? In 2024, each person can gift up to $18,000 per recipient in qualifying gifts without paying tax or needing to report the gift. That means you could gift $36,000 in total to a child and their spouse. If your spouse is giving money too, that adds up to $72,000 without paying any gift tax. Talk to your financial advisor or estate planning attorney for advice regarding your situation.

Am I avoiding unnecessary taxes? If you pull the money you plan to gift from a retirement account or you sell assets and incur capital gains, your generosity might cost you when tax time rolls around. Before you do something you might regret, get expert counsel from your financial advisor. They can help you accomplish your goal without totally breaking the bank.

Should I equalize gifts? There is no requirement that you equalize gifts among children. We have worked with some parents who choose to give less to children who are more financially successful (on the theory that they don’t need as much). However, this is something you should weigh carefully, as unequal gifts may cause lasting rancor. Despite the logic behind the thought, even emotionally mature offspring may interpret the size of the gift as a representation of their parents’ love and affection.

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