Gifting Money to Our Kids

[Souschef]

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.

Sorry, I did not say I did that, just pointed out a way to give $60K without filing any forms.

 

[youbet]

Sorry, I did not say I did that, just pointed out a way to give $60K without filing any forms.

And, those forms are pretty simple to fill out if necessary.

 

[Stormy Kromer]

I would recommend keeping things as even as possible as soon as possible. Do not wait to even things up in a will.


Here's an example.


My dad set my brother up on the family farm 40 years ago. I put myself through school and got a job, my dad promised me the same amount in his will that he gave my brother to start farming. $60,000.


Forward 35 years, $60,000 isn't worth near what it was and.....Dad died with $13,000.


And to top it, my brother lost the farm.


So, my advise is to keep things as even as possible as soon as possible then you can spend all you like and if there is anything left split it evenly.

 

[PatrickA5]

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 also worry (a little) about some of the concerns above - primarily after the kids inherit money (which possibly could be substantial). I'm not concerned about the small amounts of money we give them while we're alive - not enough to care about and it's their money to do what they want - including losing half of it due to divorce (if that ever happens).

At some point, we'll probably entertain the idea of a trust to make sure the grandkids end up with our money in the event our kids die or divorce. I wouldn't want my son-in-laws future wife (and her kids) to end up with our money - and not my grandkids. But, that's a whole different topic that I'll save for a future post down the road.

 

[pacergal]

When we gift money to our kids, it is then their money, to use as they wish.
Once I give it away, it is no longer mine. At least that is our philosophy.

They knew we LBYM, they realized it growing up. They are pretty darn good with their own budgets. And both of them chose careers in fields that are not big income generators, but their passion.
Our kids are very appreciative of anything we help with, and we feel very blessed to be able to share with them.

 

[Sojourner]

A few years ago we felt they needed a boost and paid off all their credit card debt. I fear that debt has returned.

You're probably right about the debt returning. Once someone realizes that mom and dad will bail them out of any (or most) financial difficulties, those difficulties become more like opportunities for getting free money. I think this is essentially what the authors of The Millionaire Next Door found in their research. Adult children who receive sizable, annual cash gifts tend to become lavish spenders, relying on the gift income to finance their profligate spending habits. It's also very common, apparently, for recipients of frequent cash gifts to have more revolving credit card debt than those who don't receive such gifts.

 

[RetireAge50]

We were thinking about matching their Roth contributions to help give them that initial seed money boost. The power of compounding and the tax-free nature of this account makes me really want to max it out whether it is mine or my immediate family. We feel fortunate and blessed to have responsible kids who think like me so I’m not worried about the entitlement issue.

 

[youbet]

You're probably right about the debt returning. Once someone realizes that mom and dad will bail them out of any (or most) financial difficulties, those difficulties become more like opportunities for getting free money. I think this is essentially what the authors of The Millionaire Next Door found in their research. Adult children who receive sizable, annual cash gifts tend to become lavish spenders, relying on the gift income to finance their profligate spending habits. It's also very common, apparently, for recipients of frequent cash gifts to have more revolving credit card debt than those who don't receive such gifts.

Since my own anecdotal evidence doesn't support this to any degree, I'd like to know more. It's been years since I read "The Millionaire Next Door" and don't currently have a copy here since I gave mine away long ago. Were the behaviors you described actually documented by significant, widespread studies, the feelings of the author or both?

In our case, I paid for DS's education, half his wedding, two cars (as unexpected, widely spaced gifts) and am paying for his three kids' post secondary education. He's been married 20 years and, so far, this doesn't seem to have caused any of the behaviors described above.

We've been looking at significant annual gifting as an estate planning tool but all this talk about kids going bad when they receive financial gifts has me wondering if that's a good idea or not. Damn the taxes......

 

[RunningBum]

Since my own anecdotal evidence doesn't support this to any degree, I'd like to know more. It's been years since I read "The Millionaire Next Door" and don't currently have a copy here since I gave mine away long ago. Were the behaviors you described actually documented by significant, widespread studies, the feelings of the author or both?

That's a great question. It's been many years since I read MND too. It seemed anecdotal to me, and also drew questionable conclusions from data.

For example, MND is often cited as saying that the most common vehicle owned by millionaires is the Ford F150. They conclude that millionaires eschew luxury cars in favor of the F150. The F150 statistic may be true, but I suspect many have an F150 in their driveway, along with a luxury car or two. The luxury car may be a Porsche, BMW, Lexus, whatever. Enough variety to not be #1. There are fewer pickup truck models than luxury cars, so the F150 comes out on top. I forget exactly what I was googling relating to this, but I came across The Rock in front of his Ford F-150. With his Gulfstream jet in the background. It doesn't take much research to see that he owns a lot of fancy cars.

 

[youbet]

For example, MND is often cited as saying that the most common vehicle owned by millionaires is the Ford F150.

This really shows how times have changed since MND was written! Most F150's sold today are very expensive. I think of those behemoth, 4-door monsters some of my (definitely not millionaire) neighbors are driving around. It's nothing for them to be $50k+.

I think that when MND was written, F-150's were in another tier. My 1999 F-150 cost me about $20k (with aftermarket cap) when I bought it and I've owned it all these years. So my F-150 situation fits better with the MND story. But today's F-150's, I don't think so.........

 

[Sojourner]

Since my own anecdotal evidence doesn't support this to any degree, I'd like to know more. It's been years since I read "The Millionaire Next Door" and don't currently have a copy here since I gave mine away long ago. Were the behaviors you described actually documented by significant, widespread studies, the feelings of the author or both?

I don't have my copy of TMND at hand to refer to, but from what I remember they based their conclusions on extensive surveys of many wealthy, affluent people. I recall they had lots of detailed charts and statistical data in the "Economic Outpatient Care" chapter, which led me to believe they had used fairly rigorous research methodologies. Their conclusions about the downsides of EOC were based on the results of their research, not their personal feelings.

In our case, I paid for DS's education, half his wedding, two cars (as unexpected, widely spaced gifts) and am paying for his three kids' post secondary education. He's been married 20 years and, so far, this doesn't seem to have caused any of the behaviors described above.

So, what you've done with your DS (and what you're continuing to do with his children) is fairly different than the EOC described in TMND. Their definition of EOC was something along the lines of "substantial economic gifts and other 'acts of kindness' doled out to adult children on a regular basis." Your assistance has been very "lumpy", so your DS couldn't become accustomed to regular (annual) cash infusions to supplement his normal income. What I inferred from TMND is that the more regular, reliable, and substantial the EOC, the worse it was for the recipients (i.e., it led to less saving, investing, and financial independence/stability).

We've been looking at significant annual gifting as an estate planning tool but all this talk about kids going bad when they receive financial gifts has me wondering if that's a good idea or not. Damn the taxes......

Yeah, annual gifting (of sizable amounts) to adult children would be a big red flag from the perspective of TMND. But, of course, some gift recipients will buck the trend and not be negatively impacted, so it's kind of a YMMV for any individual situation.

 

[Time2]

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.

I think time has some play in it, but I don't have a number, I also have a different feeling about her losing her spouse than a divorce.

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?

No, but that's even more reason to get my son up to even.

 

[pb4uski]

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.

I have a similar dilemma that I'm not sure the answer. DD went to college and got a decent scholarship but we paid the rest. DS, thus far, has decided not to continue his education. We have made it clear that if he ever did decided to continue his education that we would pay for it. He works and makes enough to be financially independent and is quite frugal and doesn't spend much... but he does occasionally spend unwisely and doesn't necessarily shop around for a fair deal as much as I would like.

One part of me thinks that he was granted the same opportunity as DD... a parent paid for undergraduate education... and the fact that he decided not to take advantage of it doesn't comple us to "make up" for it.

Another part of me thinks that we should somehow "make up" for it. If he were to buy a house we would probably gladly help him out with the down payment. And like the OP, I am wary of a potential divorce but given that he isn't even dating right now I'm not sure I need to be too worried about that. A potential solution would be to establish a trust with him as the principal beneficiary.

 

[donheff]

Like Youbet, my experience is different than TMND predicts. We paid the 20% down payment on the kids' houses. And we bought two cars for our daughter, who is a teacher. We also funded Roth's for both DS and DD for several years. We also set up 529s for their children which we fund equally (per our children, not per grandkid). Both of them are socking away the max they can in retirement savings and building college funds. I don't see anything that worries me about their financial behavior. In four years DW will start pulling RMDs that will far outweigh our needs. We plan to start gifting equally to the kids at that point. For DS we will probably pay directly to the grandkids college tuition which will start at that time. For DD we will cover her daughter's tuition at DD's pricey school and fund the 529 further.

If the kids were spendthrifts and/or had substance abuse problems and the like we would look into approaches that didn't feed into the problems. I suspect that is easier said than done. If they just got whacked by the economic downturn I would do what I could afford to help them get through.

 

[H2ODude]

Interesting thread. It's motivating me to "even things up" maybe sooner rather than later. In our case, always assumed the son would be less well off than daughter thanks to SIL being investment banker, living in London and money never an issue. Their return to states ~5 years ago with 4 kids who are all in private schools has put them at increasing risk. Son, has meanwhile married, both doing well with two kids in much lower cost of living area than daughter. I forgave him a large debt he used to purchase stock in his engineering company. We're now helping with daughter's private school issues; it broke our hearts that unlike his three siblings the youngest would have entered public school. Not that their public schools were bad, they're not, it's just something we couldn't fathom (the difference afforded the 3 out of the 4). As it turned out that decision, made just pre-Covid, was stellar. Unlike public schools, it kept him going to class 5 days a week in a very controlled environment rather than home learning w a computer.

We'll keep underwriting the education. Be interesting as DD is re-entering workforce (PhD engineering). And, neither of the kids is aware of other's benefits, we've tried to keep it personal and told them to not worry, their sibling is being taken care of. If all was revealed it would not be a big deal anyway.

Meanwhile with Covid we can't spend all the pension and SS, remains end up joining the portfolio, which could provide for us without the other two sources. Not travel had put a real clamp on the outflow.

 

[ncbill]

You're probably right about the debt returning. Once someone realizes that mom and dad will bail them out of any (or most) financial difficulties, those difficulties become more like opportunities for getting free money. I think this is essentially what the authors of The Millionaire Next Door found in their research. Adult children who receive sizable, annual cash gifts tend to become lavish spenders, relying on the gift income to finance their profligate spending habits. It's also very common, apparently, for recipients of frequent cash gifts to have more revolving credit card debt than those who don't receive such gifts.

IIRC, gifts that caused problems (years or decades-long dependency) were well beyond the annual gifting limit.

In one book I read (not sure if it was TMND) the author seemed to criticize a kid (might have been their spouse) who was working their way up through a school's administration because it wasn't as monetarily remunerative as dad's "built-from-scratch" business.

IIRC, there was something about dad refusing to release a trust fund as well, again, it seemed to me to be because dad felt kid had not lived up to expectations.

But rising through the ranks over an the course of a career in education seems "good enough" to me even if they never match their parent's income...so at what point does it become the parents just playing head games with the kids?

 

[RunningBum]

My thinking is that if I'm going to be leaving the bulk of my estate to my son, it's good to see how he does with a little extra now. If he was chewing through that on foolish things, I'd find some charities or something or someone else to leave the rest to. Since he's not, I think it's better to give him some now while he could really use it, rather than all of it later.

 

[Koolau]

We've already told our kids not to expect much of an inheritance. Our favorite charities will receive the bulk of our remainder if there is any. But we do gift the kids quite often - for specific events (birth of a child, house down payment, etc.) We don't specifically try to keep them "even" but do have a total (roughly equal) figure in mind before we pass. Of course, there are no guarantees in life, so, YMMV.

 

[brett]

Any monies we have will pass directly and equally to our two children.

We have no issue gifting money. We have established an post secondary edu fund for each of our grandchildren since birth. Our respective wills both call for amounts to be taken off the top to be held for our grandchildren's post secondary edu.

Our son has no children. At some point he may decide to buy a house, condo, etc. We will have no issue whatsoever in helping him at that point in time.

We have more than enough that we need. Happy to pass some of it along prior to our passing.

 

[copyright1997reloaded]

This is going to sound a bit weird coming from someone who's current gig (college professor after retiring from mega-corp) provides $ from post-secondary education...I don't think "money for college" for kids/grand kids should be prioritized any differently than money for any other legitimate purpose. For example, down payment on a house, help to fund their Roth, start their own business, and so on.

I say this as someone who sees it from the other side: We've become a society where we think a college education is the right answer...at least for "our" kids because we deem it a necessary condition to be successful and happy in life. I see plenty of kids who don't really know why they are there (except that it is expected of them) and who just might be better off with another path. For better or worse we've become a society that deems non-college educated trades/jobs as for the "losers", and as a result we end up with college graduated barista's. (Not that there is anything wrong with being a barista, only that $ was wasted that could have been used to help in other ways.)

 

[eytonxav]

We paid for private college for DD, while DS went to state university, so DD received more assistance from us. To make up for that we did gift DS for a couple of years that helped him and his wife move to a better house. We did not even consider the potential for a divorce and fortunately he remains happily married thus far and we love DIL.

 

[iRent2u]

College Education

This is going to sound a bit weird coming from someone who's current gig (college professor after retiring from mega-corp) provides $ from post-secondary education...I don't think "money for college" for kids/grand kids should be prioritized any differently than money for any other legitimate purpose. For example, down payment on a house, help to fund their Roth, start their own business, and so on.

I say this as someone who sees it from the other side: We've become a society where we think a college education is the right answer...at least for "our" kids because we deem it a necessary condition to be successful and happy in life. I see plenty of kids who don't really know why they are there (except that it is expected of them) and who just might be better off with another path. For better or worse we've become a society that deems non-college educated trades/jobs as for the "losers", and as a result we end up with college graduated barista's. (Not that there is anything wrong with being a barista, only that $ was wasted that could have been used to help in other ways.)

Having a college education is not for everyone and it does not guarantee success. I’ve lived long enough to see that some people need it and some don’t. That’s my concern about funding 529’s for all of my grandchildren.

 

[statsman]

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 discussions that the step up in basis may be eliminated for inheritors. One of many tax changes being discussed to raise revenue.

 

[RetMD21]

Would anyone consider a whole life policy for "evening out" purposes? I like the idea of dividing the estate equally among heirs. I was thinking that making the child with lower educational costs the beneficiary would be a way to give tax free in a delayed way without exceeding the threshold for gift tax issues.

 

[street]

Having a college education is not for everyone and it does not guarantee success. I’ve lived long enough to see that some people need it and some don’t. That’s my concern about funding 529’s for all of my grandchildren.

I agree totally. I know many individuals that never had a day of post education and have been very successful. If a person wants to be financially successful they can be that person with or with college.

I'm not saying it wouldn't be easier with college but a drive and mind set has a lot to do with who we are and where we want to be.