How much to give away

[Joylush]

How much would you have to have in order to feel comfortable making annual gifts?

I'm 54, basically retired except for managing my rental house portfolio. That is job itself but one with flexibility.

50% of assets are real estate, generating a net profit of about $200,000 a year.

The remaining 50% is 2/3rd in cash and 1/3rd in investments (stocks, bonds, mutual funds). Generates much less, maybe $50,000 net.

I don't spend anywhere near $250,000 a year. Thus portfolio just keeps growing. Upon death estate taxes will be owed and I understand that rate to be 40% currently. So I'd like to give some away and enjoy the giving while I'm here to direct it.

I fund/contribute to a niece and nephew's education costs. My two adult children had their college tuition paid for and graduated debt free.

Has anyone given money away? How did it work out? I have one child who is very responsible and another less so. I have trouble giving when I fear it might enable less than responsible choice making. And I seem to have an irrational fear of giving too much away but every calculation I've done tells me I have more than enough to live comfortably until I'm gone. I feel foolish even asking this question. I know I'm very fortunate. Just recently I paid $10,000 towards a new car for my daughter. She never asked or expected it (she's the responsible one). Her brother doesn't know I contributed. I feel guilty not doing the same for him (which I would do if it was needed but it's not). I could have given him an in kind gift but I fear he would do something like use it to buy himself a new car which he doesn't need and finance the rest which would put him in debt so my gift wouldn't help him.

 

[Senator]

I am in the same boat as you in terms of income and percentage of assets in real estate.

I do not have any children. I am planning on spending a lot more. Maybe when I am older, I may think about giving some away.

I did subsidize a refinance for my sister a few years ago to the tune of $30K. It was that much to bring her back from being under water.

 

[GrayHare]

Gifting to family has the risk of invoking jealousy, so I do it in a manner that seems less likely to do so, such as for specific purposes such as education. I rarely gift to large charities because I like seeing if my donation makes a difference, and the modest amounts I can afford to give will be but a drop in their bucket.

More recently I've concentrated on donating to smaller, local charities. The responses are all over the map and interesting. Sometimes I don't even get a thank you. To the ones that are thankful and put the funds to good use I often later make a larger donation.

 

[Sunset]

You don't sound comfortable, and really it's a very personal thing, so there is no correct answer.
You also will live a long time, so over time perhaps in a decade or so you will be more comfortable with giving more, but if not, the only problem is you are not maximizing your transfer of wealth. This is not really a problem as the recipients will still get a lot.

You can actually maximize some of the transfer, by assigning TOD (Transfer on Death) for your accounts so they stay out of the estate tax calculations. (note, I have not died yet, so this is not from experience ).

It's possible in a decade your son will get better with spending and some of the issues will disappear.

Another choice would be perhaps you want to spend some time with them, so plan (with them) and pay for a holiday with them separate or together, example cruise, 1 week somewhere special (Europe, Galapagos Islands, Alaska, etc..) You get to spend some money in an enjoyable way and they get a holiday they might not be able to afford, and you know where the money went.

 

[CaliKid]

You need to talk to an experienced estate planning attorney in your state. Currently each person can give away $5.4m tax free at death although some states have a state death tax that kicks in at lower amounts. If married, current law, has "portability" which effectively doubles the exemption to about $11m. That is totally tax free at death or during life or a combination of the two. In addition you can make annual gifts of $14k a year to anybody you want. You also can pay for medical and school when paid directly. I encourage clients to make gifts when they feel they will be over the estate exemption amounts. The $14k annual gifts are a no brainer since you are likely throwing money away after death to not do it. However, some people don't like to give to kids. Some good options: 529 accounts are a gift that you actually retain control over and could even take back, another great option is a life insurance trust which creates tax free wealth for future generations, and of course just straight gifts. There are other options as well. The key is to be really sure you don't need the money. The fact that you are able to live on less than $250k a year is great. Will that ever change? Will there come a time when your standard of living increases? Lots of considerations. Great problems to have for sure!

 

[Whisper66]

How much would you have to have in order to feel comfortable making annual gifts? Has anyone given money away? How did it work out?

We have no minimum in mind before we give gifts to those who need it. After meeting our basic needs, there are always seems to be left over funds to use as we choose.

Like many people, we've donated some of our salary income to charity ever since we started earning a salary. We continue to do this in retirement even though our "income" is only from investments. That's relatively simple vs giving money / loans to family or friends.

We've also chosen to give fairly sizeable monetary gifts or loans to our kids and a couple folks we have known. These were only when we felt the person was trying to be responsible plus there was a strong need that we were aware of and we could give the money in a way that it would directly impact that need. For example, we've directly paid for needed car repairs that allowed people to get to work. We've given money to assist in moves to a new job. We've backed one large low interest loan to consolidate multiple high interest loans. We've loaned money to pay off a major credit card problem. In each case, we were clear about why the money (or loan) was given and what our expectations were. Any loan had handwritten agreement both sides signed. So far these have all worked out. We even got paid back on all loans though we didn't count on that.

In other cases, we have given small amounts (<$50) as "loans" to folks in need that asked for help but we didn't know well....recognizing that money was likely lost but trying to help where we could. In most cases we never saw those folks (or that money) again but have been pleasantly surprised that sometimes we were paid back with many thanks.

 

[bclover]

So yes I gift money to family members. No I don't feel any obligation to be "fair" about it.

Unfortunately I have one brother who is a drug addict. He is always in my face about "loans". NO I will never feel "guilty" about not giving him money.

I have two sons, both have/had the opportunity to go to college for free. My youngest decided to go out of state and then fool around. lol, sorry you are not getting college tuition to waste tens of thousands of dollars. I pull his backside back home, now our arrangement is this, he takes out the loans for tuition if he passes his classes I pay the loans off. He's doing great, goes to Temple, lives at home solid 3.0 kid.

I don't have any "steadfast" rules. I have one niece who is irresponsible. I don't think she's a bad kid, just right now needs to grow up and mature a little. I tell her the same thing I tell my kids. I have no problem with helping you take advantage of opportunities. I do have a problem with you 'wasting" my money.

I never loan money I can't afford to lose.

 

[Lsbcal]

...
Has anyone given money away? How did it work out? I have one child who is very responsible and another less so. I have trouble giving when I fear it might enable less than responsible choice making. And I seem to have an irrational fear of giving too much away but every calculation I've done tells me I have more than enough to live comfortably until I'm gone. I feel foolish even asking this question.
...

Please do not feel foolish about asking. I've been wondering the same thing in a way with our son. I know someday he will get the whole estate that is left but he might be quite a bit older (I hope). I too am concerned about unintended consequences of giving.

What I'm thinking of doing after talking with DW is to give him a birthday present of a lump sum to put into a Roth IRA at Vanguard. It won't be a big sum, maybe $1000 to start. Then I can see how he handles this sort of thing over the years. Also it gets him familiar with the Vanguard choices and fees (he has a small amount at Edward Jones now ).

The process would be: discuss the idea before birthday, he opens Vanguard Roth account, I get the money to his account or to him to put into the account. He gets to choose the investment and I can make a few suggestions.

Hopefully it is a chance to open a gentle dialog about how to invest. He is not very aware of investment methodology and probably is too influenced by young, inexperienced friends. For example, after the Brexit vote he called about how maybe it was a chance to bet on things reversing i.e. a very short term trade. When one has some money in the game longer term, the lessons are more meaningful.

 

[Joylush]

So yes I gift money to family members. No I don't feel any obligation to be "fair" about it.

I don't have any "steadfast" rules. I have one niece who is irresponsible. I don't think she's a bad kid, just right now needs to grow up and mature a little. I tell her the same thing I tell my kids. I have no problem with helping you take advantage of opportunities. I do have a problem with you 'wasting" my money.

I never loan money I can't afford to lose.

This is great and exactly how I feel. I have a sister who I basically support. I could do more for her but it would only be enabling her to do less for herself and be more irresponsible. She costs me enough already.

I am more than willing to lend a hand to take advantage of opportunities but my fear is in them wasting my money. So your quote is dead on. Even in gifting I want to make good investments.

 

[gayl]

A few years older (almost a decade) and a whole lot poorer (live very well on 3k m). I gave away 100k last year but did a little maneuvering to keep it unreportable. Got both kids into new houses, cars. Plus we do a family trip each year (10-15k). This is how I see it: as long as it's under 14k per year + it really aids them in establishing a firm footage = all's good. (Think school, independent housing, education for something marketable in normal timeline)

I add " something marketable in normal timeline" as a friend is about to celebrate her son's graduation from community college after 14 yrs. She was willingly supporting him while he was in school.

 

[socca]

You can actually maximize some of the transfer, by assigning TOD (Transfer on Death) for your accounts so they stay out of the estate tax calculations.

I'm not a financial planner, but I'm fairly certain that slapping a TOD on an account keeps it out of probate but DOES NOT exclude it from the decedent's estate for estate tax purposes. Too bad.

 

[Sunset]

..... our arrangement is this, he takes out the loans for tuition if he passes his classes I pay the loans off. He's doing great, goes to Temple, lives at home solid 3.0 kid.

......

What a fantastic way of doing it. Wish my Uncle had done that with my cousin who wasted tons of money and got no education.

 

[Danmar]

I gifted my daughter a fairly large sum last year. In kind stock. The intent was a house downpayment although not spent yet. A fairly small percentage (3-4%) of portfolio. So far so good. May have to give her more if the market in Toronto keeps increasing. Only heir so much simpler.

 

[Gill]

I'm not a financial planner, but I'm fairly certain that slapping a TOD on an account keeps it out of probate but DOES NOT exclude it from the decedent's estate for estate tax purposes. Too bad.

That's correct. Having TOD on an account does not remove it from the gross estate for estate tax purposes.
Bruce




Sent from my iPad using Early Retirement Forum

 

[rdy2go]

If you are looking to donate to an organization such as a hospital, university or similar, you can always pledge an annual contribution that totals up to a large number, but not all at once. The only problem with institutions such as these is that you could give them every dime you have in life and they'll come back again and ask for more.

 

[nwsteve]

Further along the age spectrum(68) but we are trying to get our arms around the same issue.
DD also graduated with no loans and married a high performers so immediate needs from her but we did contribute to their downpayment (DSIL to his credit was not sure he liked idea), bought high-end refrig as part of housewarming when they bought their first house.
While not going to a make a large impact, and suggested by another poster is to provide matching funds for any contributions you gets put into Roth. Can be made available to both so up to them if they take advantage.
We live in a University town where we are also alumni and I have noticed the Foundation has a number of ways you can transfer wealth including accepting real estate--so with some planning you can perhaps offset RMDs with donations. Perhaps there is some research or establish a scholarship you can endow.
We also have started giving appreciated stock and getting nice deductions for it which has helped keep us below targeted tax bracket impacts.
Do you have your real estate in Revocable Living Trusts? Something to consider for both tax planning and to make your heir lives easier.
When we start RMDs in a couple of years we will probably be using the direct from IRA transfers to charities for some portion of it to help with tax bracket/SS income penalty minimization. Since you are younger you obviously have a few more years to stage things. Getting started small to explore will quickly give you perspective what gives you the best return.
There are unlimited "Go Fund Me" needs if you want make your giving meaningful to a specific need
Just some of the options we are exploring.
JRMV
Nwsteve

 

[calmloki]

Wanted to give now, when the recipient could make what was given grow and have an impact on his whole life, rather than waiting for us to croak and then whoop it up in his dotage. (planning to hang on a long long time here)

We transferred a building to him, complete with tenants: instant income stream. A building is hard to turn into instant cash; cash is easy to blow through. He is doing great, just as we expected. If/when he does sell the building at some point it will be a reasoned decision on his part. A reasonable value for the building is subtracted from our Lifetime Taxfree Gift Exclusion.

 

[Joylush]

While not going to a make a large impact, and suggested by another poster is to provide matching funds for any contributions you gets put into Roth. Can be made available to both so up to them if they take advantage.

I've done this. I wonder if it was me who made that suggestion. Thus far only one of the two took advantage of that free money. Can't say I didn't try!

 

[Souschef]

I am splitting my RMD 4 ways- Half to my 2 sons, and half to my wife's 2 sons. They need the $$ now, not when i die.
Also, if you are married, you can give a couple $56 K without hitting the gift tax. You give each 14 K, and you wife can give each one 14k

 

[haha]

You can actually maximize some of the transfer, by assigning TOD (Transfer on Death) for your accounts so they stay out of the estate tax calculations. (note, I have not died yet, so this is not from experience ).

They do stay out of probate, but not out of estate taxes. Tio Sammy not going to mess up on something that would be this easily to exploit.

Ha

 

[Meadbh]

I gifted my daughter a fairly large sum last year. In kind stock. The intent was a house downpayment although not spent yet. A fairly small percentage (3-4%) of portfolio. So far so good. May have to give her more if the market in Toronto keeps increasing. Only heir so much simpler.

I was an only heir too, and although my family's numbers were nowhere near yours, my parents could easily have made a contribution to my first home purchase. They did not, however. They gave me a nice housewarming gift of some silver spoons. They had paid for my University education, for which I will be eternally grateful, and I did not expect or receive anything more. In fact I preferred that they keep their own money in case they needed it for LTC. After they both passed away I received a nice inheritance, which was icing on the cake, made me FI, and enabled me to consider RE.

 

[Danmar]

I was an only heir too, and although my family's numbers were nowhere near yours, my parents could easily have made a contribution to my first home purchase. They did not, however. They gave me a nice housewarming gift of some silver spoons. They had paid for my University education, for which I will be eternally grateful, and I did not expect or receive anything more. In fact I preferred that they keep their own money in case they needed it for LTC. After they both passed away I received a nice inheritance, which was icing on the cake, made me FI, and enabled me to consider RE.

Nice. I would like to help my daughter more while we are here to see the impact. Also, young people really can't afford reasonable first homes in Toronto without some help. She will get most of it either way and this will very likely make them FI whenever they get it.

 

[Joylush]

Wanted to give now, when the recipient could make what was given grow and have an impact on his whole life, rather than waiting for us to croak and then whoop it up in his dotage. (planning to hang on a long long time here)

We transferred a building to him, complete with tenants: instant income stream. A building is hard to turn into instant cash; cash is easy to blow through. He is doing great, just as we expected. If/when he does sell the building at some point it will be a reasoned decision on his part. A reasonable value for the building is subtracted from our Lifetime Taxfree Gift Exclusion.

I did finance a house purchase for my daughter who had saved diligently for the down payment and had enough extra to cover maintenance/expenses. You just have me an idea. I could gift her $14000 a year as a reduction in principal!

 

[kcowan]

I don't think there is any set pattern but you certainly have the flexibility to see how the benefit of your money will affect others. Start simply and see how it goes. You have time.

 

[Freedom56]

I would not worry about giving away any money to relatives at 54. You would be creating a dependence that could enable bad behavior. This is exactly what happened to my father-in-law. He has given away over $760K over the past 18 years to my sister-in-law who evidently can't survive on their income of $9500 per month. My sister-in-law is now 51 and both she and her husband have zero savings and are in a precarious position as they approach their retirement years. My father-in-law has cut them off this past year and now they are asking us for money. They will not get any. I am 56 and over a year into my retirement and am in a similar position to you with respect to income and spending. We have zero debt and during the first 12 months of retirement, we managed to save about $118K. We can survive easily on $4500 per month excluding travel and leisure. We continue to grow our investment portfolio (70% investment grade bonds, notes, and preferred shares and 30% cash). We are spending money on home improvements that will make our lives more comfortable. We spent 6 of the last 12 months travelling. We just came back from a 2 month trip to Europe. My advice would be to spend your money on leisure and enjoy life. Focus on staying fit. You can give some money to legitimate charities and give nominal gifts to your family. When you make life too easy for people, they no longer have any incentive to better themselves and their family.