Gifting Money to Our Kids

[Time2]

Both of my kids got paid university education, because of grades, so we had minor education expenses. One child after working 3 years at a good income, compared to her parents, decided she wanted to become a dentist. So we having happily been paying for that. This means we have spent $300k on one kid and nothing on the other. I always had the idea we would just make that up withthe other child at death, but that could be 30 years. He could be in his late 50s. So, we are thinking about starting to gift him $30k a year. We have 50 times our spend rate, with SS on top of that, so gifting it will not harm us. I'm not concerned that my son will waste it or use it in a harmful manor, he is very frugal with his money, but I am concern about, splitting it with a mate, if/when he gets married and ever got divorced. We providing some Roth funding for our other child's husband and then they got divorced, so a tiny sore spot.
It would be nice if when he decided to buy a house, he had the down payment in hand.
We can just start giving it to him, but, I'd like to hear if there are some better ways to handle this.

 

[copyright1997reloaded]

If your son isn't maxing out a work Roth, perhaps you can encourage him to do so by "replacing" any contributions he makes to his Roth with $ from you (ala the gifting).

In terms of divorce and depending on the state, gifts if kept separate (don't comingle funds) aren't subject to marital distribution.

 

[Souschef]

Everyone is different, but here is how I handled it. From my RMD, I gift to all 4 sons equally on their birthdays.
One son needed a down payment on a house, so I gave him the money. I changed the beneficiary on my accounts to balance the money I gave him.
I feel, as many do, they need the money now, not in some distant future, plus I am alive to receive their gratitude.

 

[Time2]

If your son isn't maxing out a work Roth, perhaps you can encourage him to do so by "replacing" any contributions he makes to his Roth with $ from you (ala the gifting).

In terms of divorce and depending on the state, gifts if kept separate (don't commingle funds) aren't subject to marital distribution.

We have been funding his Roth account for several years, and that will continue. so, I guess it's give him $30k and he can fund the Roth from that and invest the rest in a taxed account.
On the commingling, ya I have a friend although much older, married and they don't commingle funds, on advice from his attorney. Although I wonder if you can commingle some funds and not others. If he got married I would expect a shared checking account and maybe shared Vanguard account, but could he have one Vanguard account that is not commingled and have it treated separate in a divorce? Residing in Florida.

 

[street]

I agree that the kids need the money now more then when they are 50' and 60's. I would do the 709 gift form which is above the set amount for giving in one year. You may want to educate yourself on the 709 Tax Gifting rules.

One suggestion is if the child doesn't need the money right away is to set up a mutual/stock/bond funding for them.

 

[audreyh1]

I feel, as many do, they need the money now, not in some distant future, plus I am alive to receive their gratitude.

Yes, we gift while alive. But a big reason is we have no children, so our heirs are siblings. They are getting older too!

 

[euro]

Interesting post as we ended up in exactly the same situation (down to the detail that one of our kids also went to dental school!). We had equal 529s for our 2 kids - one used it all up, the other didn't complete college and still has a $150k balance. For now, we are hanging on to that balance - if they have kids, we'll likely transfer it to the grandkids and essentially fund their education. If not, we may help fund a business startup or a house purchase for the one who didn't use up the 529

 

[Sojourner]

So, we are thinking about starting to gift him $30k a year.
...
I'm not concerned that my son will waste it or use it in a harmful manor, he is very frugal with his money, but I am concern about, splitting it with a mate, if/when he gets married and ever got divorced.

Based on various studies that have been done on this (most notably discussed at length in The Millionaire Next Door), this is generally not a good idea. Often, adult children who receive large, regular cash gifts from their parents end up building less wealth and less financial security than adult kids who don't receive such gifts. This is because they begin to view the money as "theirs", as an entitlement, which tends to diminish their incentive to save and invest. So, instead of being helped by the cash gifts, they are actually harmed by them over time, which is the opposite of what the parents were hoping for.

I suggest you read the chapter titled "Economic Outpatient Care" from The Millionaire Next Door before embarking on a annual cash gifting plan.

 

[PatrickA5]

Two of my three kids finished college (on my dime) to the tune of around $100K each. My middle daughter stopped going to college after a couple of years. We don't really feel a need to pay the difference to her "to even things up". If she decides to start back up, we'll pay for it.

We occasionally gift a little money to each of the kids and we make an effort to do that evenly.

 

[Time2]

Based on various studies that have been done on this (most notably discussed at length in The Millionaire Next Door), this is generally not a good idea. Often, adult children who receive large, regular cash gifts from their parents end up building less wealth and less financial security than adult kids who don't receive such gifts. This is because they begin to view the money as "theirs", as an entitlement, which tends to diminish their incentive to save and invest. So, instead of being helped by the cash gifts, they are actually harmed by them over time, which is the opposite of what the parents were hoping for.

I suggest you read the chapter titled "Economic Outpatient Care" from The Millionaire Next Door before embarking on a annual cash gifting plan.

I've read it once, but will review that chapter. All you quoted about the book may be true, but I'm sure not universal. I may even have him read the chapter, probably the whole book! As I said my son is frugal, he recently mulled over purchasing a new chair for his computer for about close to two months before he pulled the trigger, and longer than that before he upgraded his 7 year old computer, he didn't buy a new, just upgraded some parts.

 

[Time2]

Two of my three kids finished college (on my dime) to the tune of around $100K each. My middle daughter stopped going to college after a couple of years. We don't really feel a need to pay the difference to her "to even things up". If she decides to start back up, we'll pay for it.

We occasionally gift a little money to each of the kids and we make an effort to do that evenly.

Ya, I can understand that, but we have spent over $300k on the one and she should have a high income once she gets going. The other, having a chemistry degree probably won't have even half of the yearly income.

 

[Time2]

Is there such a thing as gifting appreciated assets at cost to children?

 

[Montecfo]

Is there such a thing as gifting appreciated assets at cost to children?

Yes. They get your basis. So if their tax bracket is lower it can be a benefit.

 

[copyright1997reloaded]

Is there such a thing as gifting appreciated assets at cost to children?

Yes.

If you transfer in-kind asset, they get the original cost basis.

While a step up in basis upon your death implies it is better to hold onto assets like this (so they pay no capital gains tax upon your death), there are still occasions where transferring appreciated assets make sense, when the child has a considerably lower tax bracket than you do and can sell off some/all of the asset with minimal capital gain tax.

ETA: In fact, I just did this on the 30th. I decided to fund my child's UTMA with some appreciated stock with the plan of doing tax-gain harvesting up to their limits of 0% LTCG rate. (around 2K per year), and the idea that when they get control of the account and aren't subject to "Kiddie Tax" rules (i.e. out of college) they will still be in a low tax bracket. As with most strategies like this, YMMV in terms of achieved results.

ETA 2: Forgot to mention I was worried when I did this mid-day on the 30th, as Ameritrade message stated it might take 2 business days to complete. So, I was happy when I saw the transfer happened w/i 10 minutes time.

 

[mpeirce]

We paid for our kids' educations. They could go as far or not as they desired. Two of them ended up with masters, but they each cost different amounts at different times. No real goal to keep the payments equal.

We view this as providing them with a good start in life. Now it's up to them.

They will inherit something when we kick the bucket, but our (and their) expectation is that it won't have a real impact on their lives for the foreseeable future.

 

[flyingaway]

I have the same problem, worrying about future marriage and divorce. I recently started a similar thread on Bogleheads with a similar topic.
At this time, I put the money in a Fidelity account specifically designed for my son a the heir. I am also managing his own finance and know he doesn't waste any money.
Honestly speaking, I don't know when I will give him the money, but I told him that we have some money set aside for him.

 

[iloveyoga]

It's a conundrum for me. We probably saved too much. In my limited experience, giving money to our grown kids has not been that helpful to them. So I continue to read and ponder. Thanks for the discussion.

 

[ivinsfan]

I'm a little confused here about the divorce concerns.

What if you leave the money in a lump sum after you die and then they get divorced.
What if god forbid your child dies and the spouse gets all the money anyway.

What if your child god forbids turns into a monster and get divorced for cause. Maybe there are kids involved who need that money.

Are there no circumstances where you would be ok with the "not really a blood relative" person getting some of the money you already gave away, so it's not your money anyway?

I knew a guy who I always quite liked. He bought the family farm from his parents. Only one son with a solid marriage. They made a choice not to have children. He tried explaining to me that if his son got the farm and later died, it was OK for the daughter-in-law to get money but he didn't want her to get the farm, because he wanted it to stay in the family. Whatever!

Now if you had a child struggling with money/mental health/addiction I understand protecting them from themselves.

OP what if you pay for dental school and your DD decides to join an ashram and meditate all day? Is she going to have to pay you back?

 

[mpeirce]

In my limited experience, giving money to our grown kids has not been that helpful to them.

I observed my grandfather’s experience (after the fact). He built a successful construction business and did very well for himself. He did pass both the business and a fair amount of money down to my father’s generation.

It’s all gone. For lots of different reasons.

He did set up things so that his grandkids all could go to college. Thank goodness. It launched us all into pretty good lives - that we each built for ourselves.

I’m forever grateful.

YMMV

 

[euro]

I'm a little confused here about the divorce concerns.

What if you leave the money in a lump sum after you die and then they get divorced.
What if god forbid your child dies and the spouse gets all the money anyway.

What if your child god forbids turns into a monster and get divorced for cause. Maybe there are kids involved who need that money.

Are there no circumstances where you would be ok with the "not really a blood relative" person getting some the money you already gave away, so it's not your money anyway?

I knew a guy who I always quite liked. He bought the family farm from his parents. Only one son with a solid marriage. They made a choice not to have children. He tried explaining to me that if his son got the farm and later died, it was OK for the daughter-in-law to get money but he didn't want her to get the farm, because he wanted it to stay in the family. Whatever!

Now if you had a child struggling with money/mental health/addiction I understand protecting them from themselves.

I agree - to me, my son in law is family too. I understand that he benefits from any gifts I give to my DD and I'm ok with that. I also understand that marriages sometimes break up. If that happens, I'll be very sad for them, but that's life. I don't need to control my gifts past the point where I give them. What happens downstream is not my business.

 

[aaronc879]

I would do $15K/yr so I don't have to deal with the extra tax forms.

 

[Souschef]

I would do $15K/yr so I don't have to deal with the extra tax forms.

If your child is married, you can give up to $60K without filing any forms:
You give $15K to your son
Your wife gives $15K to your son
You give $15K to DIL
Your wife gives $15K to DIL

 

[Brat]

I suggest you gift him a meeting with a lawyer for life advice and a meeting with a financial advisor. You pick the lawyer and the financial advisor (probably a CPA).

Although he is single he still needs a will and health care directives, the attorney (assuming he has seen a divorce or two) can share his professional experiences. In many states, if he marries he may need to update the documents mentioned. They can advise him of organizations to be wary of, such as investment advice from a banker. Establishing relationships with professional advisors will assure that he has control of his future.

 

[Happyras]

I am struggling with similar concerns. We have two daughters both now married. We gave each of them a substantial down payment on their first home, and the youngest we went further to provide the entire "mortgage" which is forgiven upon death. The youngest was just married this year and she and her husband do very well. They are as tight with money as I am! So our balance sheet is tipped by about 300K to her.

However our oldest daughter and her husband are not so frugal. This week they had our second grandson, and it was a poor timing for their insurance coverage. Our daughter was laid off from the Hyatt all year now, and with the new baby will not be able to return any time soon. Her husband does OK working at a start up company from home. A few years ago we felt they needed a boost and paid off all their credit card debt. I fear that debt has returned. I set up a joint account at Fido to provide some cash flow for them, but I am not certain how far I should go.

I think the impact of gifts depends on the individual, despite what is written in the Millionaire Next Door. Our youngest daughter would simply save any money we gift to her, and I know our oldest daughter would spend it freely in good times. She likely really needs it now just to get through the next few months. I am thinking I will make it a "loan" for now......

 

[aaronc879]

If your child is married, you can give up to $60K without filing any forms:
You give $15K to your son
Your wife gives $15K to your son
You give $15K to DIL
Your wife gives $15K to DIL

Sorry, i'm single so automatically look at things from a singles perspective. In that case I would go ahead and give $30K every year since it sounds like it's easily affordable for you.