Did you gift money to your kids? How?

[wanaberetiree]

My daughter and SIL are considering to buy a house.
It will be costly proposition in the San Francisco/Bay Area as prices are too high.

I would like to help them, considering allocating something like $50-150K. My SIL is hesitant to accept this.

I am looking for advice on how other people actually 'give' money to kids. In particular, those of you who has done this, would you just gift it? Would you give them a loan? How would you do it? How have you done this?

 

[GrayHare]

One way is to set up an investment account in your child's name and over time deposit gifts into it. When making the deposit, choose an investment you think wise, and hope some of that wisdom will carry forward. That way the gift can be more than just money.

 

[Sittingduck]

I do not plan on giving my kids "Economic Outpatient Care" (as discussed in the Millionaire Next Door). However a boost up the ladder when they are getting started seems wise IMO.

We paid their college cost up to what the state college tuition was and they had to get a loan for the rest. They both chose private schools so the rest was significant. Years later after they had both found jobs and were successful in their initial struggles
in the real world and demonstrated an ability to manage their finances and make on time regular payments, The Bank of Dad wrote off their remaining loan balances as a gift. (One made a nice wedding present).

My daughter just bought a house, and we gave her an outright gift to help her with the portion of the down payment she was short on. She is not expecting a lot of future financial help, but was very appreciative of help getting her into her first house.

Seeing you are in the Bay area, and looking at a much higher amount, I see nothing wrong with drawing up a loan agreement. A formal loan agreement would probably make your SIL much more comfortable in accepting help, and you can always write off the balance at a later time in celebration of a special event, ie birth of grandchild or other happy occasion.

(you have to be careful, if you do not charge market rate interest it is considered a taxable gift).

 

[frank]

Seeing you are in the Bay area, and looking at a much higher amount, I see nothing wrong with drawing up a loan agreement. A formal loan agreement would probably make your SIL much more comfortable in accepting help, and you can always write off the balance at a later time in celebration of a special event, ie birth of grandchild or other happy occasion.
(you have to be careful, if you do not charge market rate interest it is considered a taxable gift).__________________I would like to hear more about this scenario. where can I find it? thanks

 

[donheff]

My son and D-I-L needed an extra 100K for a down payment on a new home while the old home remained on the market. They initially wanted a loan but that would disqualify them because of the two mortgages. Gifting was the only way to do it. We gifted but they informally paid us back at 1k/month. After a couple of years we concluded that our spending rate was low enough that we could forgive the loan and did. One minor issue was that a portion of the gift could not be worked into the annual gift tax exemption so it counted against our lifetime exemption.

 

[NW-Bound]

One can give any amount to anybody, but the problem is the gift tax if the amount is more than $14K to an individual from each donor. Note that a couple can give $28K to a child in a year tax free.

When we gave money to our daughter for her 1st home down payment, this intention was let known to the realtor and the loan officer. They needed to know the source of the down payment. Then, my daughter brought to closing two certified checks, one from each of us. That made sure to the IRS that we were within the allowed limit.

If one wants to give more than $28K, I guess it is possible to defer the gifting of some of the money into future years by structuring a series of loan, which is then forgiven later to the tune of $28K/year. I think the problem with this is that the mortgagee needs to know about this. Including the not-yet-forgiven loans in the debt load of the offspring may increase it to the point of making him or her unqualified for the mortgage.

 

[NW-Bound]

I just thought of the following. As the $14K/yr limit for gift tax exclusion is for individual-to-individual gifting, the OP as a couple can give up to $56K/yr to their daughter and SIL. Just make sure that the checks are written out separately from each donor to each recipient.

 

[Rustic23]

I am a firm believer in 'NEVER loan money to your kids!' No exceptions. First hand experience, we did it. For a short time they were paying it back, then not so much. We really did not need the money, so that was not the point. However, their lack of ability to pay it back was a rubbing point for DW and myself. Finally I told them the loan was a gift. If it had continued as a loan, our relationship would have suffered greatly and it is not worth it. We have two kids, and after that experience we stick to the 'Give, don't Loan money to kids' If you can't afford to give it to them, help them find a bank. I would not co-sign a note either. (did that also, not as bad as the 'loan' but still not perfect either)

 

[NW-Bound]

I am a firm believer in 'NEVER loan money to your kids!' No exceptions... Finally I told them the loan was a gift. If it had continued as a loan, the our relationship would have suffered greatly and it is not worth it. We have two kids, and after that experience we stick to the 'Give, don't Loan money to kids'...

+1

The above does not just apply to kids, but any relative or friend.

 

[imoldernu]

Kids are doing fine...
Except for a small Christmas check, no gifting.
They know we're frugal, and very conservative, so if we don't give today, they'll get whatever's left when we're gone. We've discussed and they totally agree.

 

[Pleeplus]

I am on board with not doing a loan. In my opinion this is just opening up opportunity for problems, (e.g late payments, no payments) which then becomes the "elephant" in the room when together and potentially strains relationships. Instead of helping with a down payment could the gift be in the form of furnishing the new house (appliances, furniture, etc.)? This might be an easier pill to swallow for your SIL and potentially less of a hit on his ego.

 

[jerome len]

It all depends on your net worth and tax bracket, so if you have a reasonably high net worth I would see your CPA. I'd never loan but if you have a good kid and can afford it I would gift the money. I gift each year so, if the tax law changes again, my kids won't have to pay inheritance tax to the government. Loans can be confrontational and my goal is to gift what I can afford but never gift so much that it takes away their work hard to achieve financial success. If I had less money I'd help as much as I could and ask that they surprise me with a partial re-gift if they could afford it in the future. good luck and if your kids appreciate the help, enjoy your "warm fuzzy" that you'll get from helping them.......I know my parents did years ago when they helped me.

 

[Indigo Mule]

If the children are financing the rest of the house, what you provide for the downpayment needs to be a gift; if it is a loan, it affects the mortgage amount. (That is to say, the repayment amounts for your mortgage-assistance loan are factored into the calculation by the bank as to what the children can afford to repay on the main mortgage.)

 

[seraphim]

Straight out gift - as Nwbound stated, but I thought the limit was $13k per person.

When our son graduated from college, he was getting ready to head to Broadway. He was going to work, but a job could interfere with callbacks and a loss of opportunity, so we gifted $26k, $13k from from each of us; to be used for expenses in NYC or to be invested. He ended up investing it and working for a production company locally - figured he needed more training and experience.

I don't mind assisting as long as he's working full time. He's either going to get it anyway after we're gone, or Uncle Sam will, in one way or another. If it will help him get established now, then I'm all for helping out.

 

[NW-Bound]

Yes, that limit used to be $13K, and even lower.

The limit used to be $10K/yr per donee for a long time, but it has been gradually raised to the current $14K.

From IRS Web site:

How many annual exclusions are available?

The annual exclusion applies to gifts to each donee. In other words, if you give each of your children $11,000 in 2002-2005, $12,000 in 2006-2008, $13,000 in 2009-2012 and $14,000 on or after January 1, 2013, the annual exclusion applies to each gift.

What if my spouse and I want to give away property that we own together?

You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013.​

For more info, see: Frequently Asked Questions on Gift Taxes.


By the way, I liked to help my children got established when they just started out on their own, just like I footed their college education because I could. However, I made sure to let them know that it was a one-time gift and they were not to expect periodic gifts like that, or that I would be able to bail them out if they messed up their financial affair.

The above said, if my net worth increases with time due to luck or the generous market god, I may be able to help them further by funding their Roth account or something like that. However, I would not encourage them to expect periodic handouts. So far, they seem to be doing OK, and are saving money too.

 

[Revlefty]

Now I'm worried...

My parents are planning to "give" me their Florida mobile home when they are no longer able to make the migration trip down there from the snowy northland. What would be the best way to accomplish this? If they can only give me $14,000 per year, but the home is worth $40,000, how can we accomplish this transfer of ownership? Can they sell it to me for less than an appraised value? Mobile homes are treated like automobiles--they are sold by signing over a title to the buyer.

And where does this gift tax show up? Do you have to report to the IRS large cash gifts you give to your kids? If my parents make the transfer while they are alive, it really isn't part of estate or inheritance taxes issues, is it?

I'm looking forward to spending winters in the Florida sunshine, but I hope this isn't getting complicated for me.

 

[donheff]

My parents are planning to "give" me their Florida mobile home when they are no longer able to make the migration trip down there from the snowy northland. What would be the best way to accomplish this? If they can only give me $14,000 per year, but the home is worth $40,000, how can we accomplish this transfer of ownership? Can they sell it to me for less than an appraised value? Mobile homes are treated like automobiles--they are sold by signing over a title to the buyer.

And where does this gift tax show up? Do you have to report to the IRS large cash gifts you give to your kids? If my parents make the transfer while they are alive, it really isn't part of estate or inheritance taxes issues, is it?

I'm looking forward to spending winters in the Florida sunshine, but I hope this isn't getting complicated for me.

If you have a spouse and they gift it to you both the market value can be up to $56K. But really, does it matter? Unless they have enough to run into estate tax problem why not just gift it to you and claim the excess over $28K against their lifetime exemption? Neither of you pay taxes either way.

 

[Revlefty]

Thanks. I don't know how much money they have in their estate to kno wif it would run up against any limit. Yes, between my wife and I, my mother and father could gift us $56,000 and that should cover the problem.

 

[seabourne]

You would need to run it by an attorney, but you could probably structure it as half loan half gift, and then forgive the loan in the following year(s) at the gift rate. Make sure that the loan is documented and that the rate is at the market so that none of the loan would be considered gifted or discounted as written.