First World Problems - Giving it Away

[DawgMan]

I am wrapping up my last year of earning income and expect to start withdrawing from assets starting in 2022 (both DW & I will be 57). I am fortunate to have enough investments to fund a pretty "Fat Fire" retirement. In fact, it appears my conservative nature may have me overfunded... but as we know, who really knows? I never really had "legacy objectives", but only to make sure we were never a financial burden on my 4 kids later in life. Fast forward to today, grandkid #3 is due any day now and my DW has created a whole new spend category I call "Grandkids"! With 4 kids and a growing number of grandkids, it seems easy to find ways to "spend money" (i.e. grandkids 529's, gifting to kids, charity). The math says I can live Fat Fire in the 2 - 2.5% WR range) which shows a big bucket of dough at the dirt nap... not really my intention. I am trying to walk the tightrope of 1) making sure DW and I accomplish goal #1 noted above, 2) live a full life with selfish bucket list which includes family stuff(perhaps some extravagant family trips), 3) be prudent in how/when/what I give to the kids so as not to create an "entitlement" mentality, and 4) give to the causes I believe in. Perfect scenario is I accomplish all of the above and maybe leave a little nugget to the kids.

If you had them, how did you manage these objectives and how did it play out? Did you run cautiously at the start before giving away to make sure your plan was sound? What metrics did you use to earmark X for give away?

 

[Midpack]

I wish I knew.

We give far less than most projections say we could afford to, far less than we’d like to. We do plan to be more generous many years from now, but with about 30 years in retirement judging by family history, and no way to predict how the many variables will unfold (the routine stuff, never mind geopolitical risks), I just can’t make myself to push the envelope at all. We want ZERO chance of living in poverty at the end. If someone has a bulletproof plan, we’d love to hear it as well.

 

[SecondCor521]

My family is facing these issues at two different generational levels (the grandparent level and the parent level). We're at the beginning of this process so I can't tell you how things will play out just yet.

I like metrics for decision making, so the two metrics I've identified are:

1. Decide what you think the applicable estate tax exemption amount will be when you die. If you're above that level, give away money. If you're below that level, don't give away money. (This sorta assumes that the person feels that the estate tax exemption amount is enough to provide for their own needs.)

2. Run FIREcalc for 100% safe spending levels for the assets and life expectancy of the applicable person. Let's call that number $X. Assume the person is spending at a lower rate, let's call that number $Y. Give away $X - $Y every year. Reevaluate every year.

ETA: I think Midpack's comment is an excellent one. Even with 2x or 3x or 4x the amount of money necessary to be mathematically safe, I think it is common for people in this scenario never to feel safe. So even if metric #2 above is "100% safe as long as the future isn't worse than the past" there will always be ways to imagine failure, including catastrophic end-of-life medical bills, rampant inflation, stock market crashes, asteroids, etc. Especially at the grandparent level, when they may have been born in the Depression, and seen world wars, stagflation, market crashes, etc. already.

 

[DawgMan]

My family is facing these issues at two different generational levels (the grandparent level and the parent level). We're at the beginning of this process so I can't tell you how things will play out just yet.

I like metrics for decision making, so the two metrics I've identified are:

1. Decide what you think the applicable estate tax exemption amount will be when you die. If you're above that level, give away money. If you're below that level, don't give away money. (This sorta assumes that the person feels that the estate tax exemption amount is enough to provide for their own needs.)

Good question. I think the days of $23M per couple are about to end which will get us back to estate planning. But I have been thinking about working backwards and say plan on leaving each kid X and then gift/spend the rest

2. Run FIREcalc for 100% safe spending levels for the assets and life expectancy of the applicable person. Let's call that number $X. Assume the person is spending at a lower rate, let's call that number $Y. Give away $X - $Y every year. Reevaluate every year. The rub is trying to be proactive/strategic to give when it's right vs fighting that conservative gene that holds you back.

ETA: I think Midpack's comment is an excellent one. Even with 2x or 3x or 4x the amount of money necessary to be mathematically safe, I think it is common for people in this scenario to never feel safe.

See above!

 

[Souschef]

The thing that drives me now is RMD. At my age, it is over 5% of my IRA's. This year my RMD is over 100K. I have divided up into 3 categories- sons, state and federal taxes, and QCD's.
I am gifting each son the max ($15K) and the balance after paying estimated taxes will go as follows:

Homeless shelter
Religious institution
Angel Flight West
Food Bank
Railroad Society

 

[DawgMan]

The thing that drives me now is RMD. At my age, it is over 5% of my IRA's. This year my RMD is over 100K. I have divided up into 3 categories- sons, state and federal taxes, and QCD's.
I am gifting each son the max ($15K) and the balance after paying estimated taxes will go as follows:

Homeless shelter
Religious institution
Angel Flight West
Food Bank
Railroad Society

So I guess the question is would you have gifted differently knowing what you know now? I suppose that is an unfair question as you didn't know what the markets/world would unfold. It seems like you have been agile and stayed with a course that was consistent with your values. I suppose that is the best any of us could hope for.

 

[RetireeRobert]

The thing that drives me now is RMD.

+1

RMD's are also central to my main financial decisions these days. As is the annual per person federal gift tax exemption amount. I also keep a wary eye on my State's estate tax rate on assets not excludable, and that drives me to reduce my estate.

So, I see my unneeded RMD's in the $80,000 range coming out of my tIRAs each year. My plan is to gift to each of my three kids the max ($15,000 per person) exempt gift amounts using part of those funds. Then to fund some favorite charities with QCD's with the rest of the unneeded RMD's.

Not fancy, but it addresses my main concerns, benefits my kids, and benefits my favorite charities.

 

[twaddle]

I can only tell you that my charitable preferences shifted a lot in 20 years. My goal is to make an impact I can see while I'm still around. I avoid obvious family gifting because it can potentially create expectations, entitlements, and conflict.

Don't be in such a hurry that you make decisions you'll later regret. But be in enough of a hurry to see tangible benefits of your gifts.

 

[DawgMan]

I can only tell you that my charitable preferences shifted a lot in 20 years. My goal is to make an impact I can see while I'm still around. I avoid obvious family gifting because it can potentially create expectations, entitlements, and conflict.

Don't be in such a hurry that you make decisions you'll later regret. But be in enough of a hurry to see tangible benefits of your gifts.

Hence, the tightrope! Agree. I really believe/prefer to be around to see some positive impact as opposed to leaving a chunk of dough.

In my case, it's all on my investments (other than what comes from SS) so I am at the mercy of Mr. Market which can make one perhaps more conservative than they should be at times.

 

[Souschef]

I can only tell you that my charitable preferences shifted a lot in 20 years. My goal is to make an impact I can see while I'm still around. I avoid obvious family gifting because it can potentially create expectations, entitlements, and conflict.

Don't be in such a hurry that you make decisions you'll later regret. But be in enough of a hurry to see tangible benefits of your gifts.

I agree! I just got a newsletter from a homeless shelter I donate to with a picture of the handicapped shower being loaded inside. I was the one who made that possible with my donation.

 

[38Chevy454]

Sure would be easier if we all knew our expiration date! The nature of being conservative and saving, makes it tough to increase spending, although I agree with you about not wanting to have a huge pot oif money left over when i am gone. I have no need to fund the "38Chevy454 Memorial Library" or whatever. It is nice to think about what can be done today, without jeopardizing the future plans. I guess I don't have any real advice, although you could look at withdrawal rates and increase spending up to the 4% limit without much worry about depleting the savings.

 

[chassis]

I am wrapping up my last year of earning income and expect to start withdrawing from assets starting in 2022 (both DW & I will be 57). I am fortunate to have enough investments to fund a pretty "Fat Fire" retirement. In fact, it appears my conservative nature may have me overfunded... but as we know, who really knows? I never really had "legacy objectives", but only to make sure we were never a financial burden on my 4 kids later in life. Fast forward to today, grandkid #3 is due any day now and my DW has created a whole new spend category I call "Grandkids"! With 4 kids and a growing number of grandkids, it seems easy to find ways to "spend money" (i.e. grandkids 529's, gifting to kids, charity). The math says I can live Fat Fire in the 2 - 2.5% WR range) which shows a big bucket of dough at the dirt nap... not really my intention. I am trying to walk the tightrope of 1) making sure DW and I accomplish goal #1 noted above, 2) live a full life with selfish bucket list which includes family stuff(perhaps some extravagant family trips), 3) be prudent in how/when/what I give to the kids so as not to create an "entitlement" mentality, and 4) give to the causes I believe in. Perfect scenario is I accomplish all of the above and maybe leave a little nugget to the kids.

If you had them, how did you manage these objectives and how did it play out? Did you run cautiously at the start before giving away to make sure your plan was sound? What metrics did you use to earmark X for give away?

Great topic. I see things generally as you wrote.

I had a discussion touching on these points this week with a family member.

Remember the $15k per donee, per donor, gift allowance. If a donor and spouse both give the $30k per donee in the family, many estates could be consumed fairly quickly. This was a surprise to my family member, who considered the estate fairly fortress-like, which it is. Just not an impenetrable fortress. He was not intimately familiar with the gift allowance.

Other questions arise in terms of (age brackets are arbitrary):

- what if cash gifts are given to children under 12 yrs?
- what if cash gifts are given to children aged 12 - 40 yrs?
- what if cash gifts are given to children older than 40 yrs?
- what help is needed/will be offered for life events, such as new home purchase, educational tuition/expenses, unexpected financial need (unemployment, illness), etc.?

Family travel is a nice idea. What if the family members are not available (school, work) to attend the trip(s)? What if the family members don't like to travel in large-ish groups?

I'm in the mindset to use all of the mechanisms, probably with minimal use of direct cash gifts, aka the $15k allowance. I like the idea of helping with life events, some family travel and end of life estate transfer.

 

[SecondCor521]

^ Do note that the $15K gift allowance is supposed to include things such as trips and home purchase assistance, unemployment help, etc. So if you take junior on a $5K European river cruise this summer, you can only give them $10K in cash.

The two exceptions to this are school tuition and medical bills, which in both cases must be paid directly to the provider. Also of note, educational expenses other than tuition are not included in this exception and thus would be part of the $15K allowance.

Well, there's the third option which is filing a gift tax form with the IRS and eating into the lifetime unified credit / basic exclusion amount.

Gifts of property to children under the age of majority in most states I think would require a custodian. Most states have adopted UTMA, so that's a fairly easy option. Also, 529s are probably a good option for kids/grandkids of most here if college is likely.

 

[NgineER]

Something worth considering is also gifting highly appreciated stock in lieu of cash to your kids. My sense is that people only consider gifting cash, but it can be advantageous to gift stock to reduce the impact of highly appreciated stock on your own withdrawal strategy.
The giftee still gets money, while they might be responsible for taxes on sale they would most likely be in a lower tax bracket benefiting from the generous gift.

My understanding is that the gift amount is the value of the stock on the day of transfer and they are still responsible for the cap gains, but if they are in a lower tax bracket they might not be taxed at all on the federal side.

 

[Souschef]

Under 18 you can set up UGMA accounts.

18-30, would be discretionary, depending on the level of financial maturity
30 + depending on needs and situation
I gave one son a six figure amount from his "inheritance" to help him buy a home.

 

[chassis]

Article from Schwab explaining tax implications of stock gifts.

For the donor, gift tax basis is the market value at time of donation.
For the donee, capital gains tax basis is on the donor's original cost basis.

https://www.schwab.com/resource-cen...he simple answer to your,stock at $50 a share.

 

[Miarocks]

The thing that drives me now is RMD. At my age, it is over 5% of my IRA's. This year my RMD is over 100K. I have divided up into 3 categories- sons, state and federal taxes, and QCD's.
I am gifting each son the max ($15K) and the balance after paying estimated taxes will go as follows:

Homeless shelter
Religious institution
Angel Flight West
Food Bank
Railroad Society

If you and your sons are both married, you (together with your spouse) can gift $60k total to each couple. $15k from each parent to each recipient.

https://www.irs.gov/businesses/smal...oyed/frequently-asked-questions-on-gift-taxes

 

[EastWest Gal]

How about funding 529 plans for the grandkids?

 

[DawgMan]

Appreciate all the responses. As it relates to annual gifting, I am sensitive to creating an entitlement mentality as they perhaps come to expect X $$ from papa every Christmas. I prefer to be more strategic (i.e. down payment on a house, needed new car), but perhaps that will change over time. Funding grandkids educations is an easy one.

I suppose I am more curious as to how some of you adjusted/modified your giving strategies at different ages/changes in net worth? Any specific triggers you set up? It would seem natural to me to want to settle in the first few years of retirement, assuming they are go-go years, and see how your real spending plays out relative to your plan. Once you get comfortable, then start monitoring your year to year balances relative to your WR at which point you may feel more comfortable pulling certain "gifting levers"... at least this is what I envision.

 

[jollystomper]

DW and I were fortunate in having established a giving pattern for charities and gifts well before my FIRE. It was a no brainer to incorporate this into our planned retirement spending. Even though charity+gifts having been our 2nd biggest expense area (after taxes), we are more than comfortable and our assets are still much higher than when I retired.

I do not anticipate any changes until I take SS and then start RMDs, at which point we will likely ramp up the charity/giving proportionately. We will also explore things like establishing a QCD.

 

[athena53]

DW and I were fortunate in having established a giving pattern for charities and gifts well before my FIRE. It was a no brainer to incorporate this into our planned retirement spending. Even though charity+gifts having been our 2nd biggest expense area (after taxes), we are more than comfortable and our assets are still much higher than when I retired.

I also had a generous charity budget all along. I retired almost 7 years ago and that has continued. My average withdrawal rate has been a little under 3.5%; the year late DH and I downsized was far higher but it's averaged out to that. Once I've taken it out I see no reason to deploy less than that. Some goes for necessities, some goes for work on the house (maintenance or upgrades that are "wants"), in normal years 20% of my budget is travel and what doesn't get spent goes into the 3 grandkids; 529 accounts. I have a regular line item for charity allocated out of my SS and pensions and give at will from that throughout the year.

I've given very little to DS (my only child) and DDIL- $15K a few years ago when they bought a bigger house and $3K recently. I wanted to gift them a new gas stove (I don't like cooking on their electric) but was open to ideas from them. They'd just had to replace their furnace but were perfectly happy with their stove so could I just give them $3,000 to replenish their coffers? Not as sexy, but OK.

OTOH- I'm spoiling the grandchildren a bit. The girls (4 and almost 7) get their hair cut at Shear Madness when I visit, and I'd taken the older one to Chicago (one-hour flight) twice before COVID shut that down. We'll resume with the 4-year old when it's safe and eventually include their little brother (turns 2 in June). In the meantime I've taken the girls for overnights in a local Embassy Suites- they love that. I have dreams of more extended trips with them.

I'll re-adjust when I file for SS on my own record next year. I'll be 69 but have waited long enough. After setting aside a chunk for more taxes, more will go to charity and some will go to reduce withdrawals from investments. I really don't need it.

Will also re-adjust when I'm forced to take RMDs and will take full advantage of QCDs then.

 

[Dash man]

We monitor our net worth quarterly. If it’s going up we tend to be more generous. If it starts to decline we’ll reduce the giving and spending.
We also protect our giving be retaining ownership. We own two townhomes, one for each son and his family to live in rent free. They know if something happens we may have to sell them, but otherwise they will get them as an inheritance. The 529 plans are the same, we own them and the grandkids are the beneficiaries. But in a crisis we could withdraw the funds and pay the tax and penalty. Of course, we don’t anticipate ever having to sell the townhomes or cash out the 529 plans. And we don’t include them in our net worth calculations.
In 2020 we significantly increased our charitable giving because of COVID. Net worth still increased. We gave some cash at Christmas, but they won’t get that every year.
We’re both 64 and for me, family history isn’t great plus I have heart disease. DW’s family has good genes, but she is a cancer survivor and must stay vigilant. We plan to 90 and will still leave a nest egg barring a catastrophic turn.

 

[Whisper66]

I suppose I am more curious as to how some of you adjusted/modified your giving strategies at different ages/changes in net worth? Any specific triggers you set up?

Pre-retirement:
Charities - increased donations thru the years as salary increased.
Kids - Wanted them to learn to be self sufficient so generally avoided monetary gifts. We did provide modest gifts when graduating from college or getting married. Also stepped in a couple times when they got into financial troubles. Only helped in ways they would learn from.

When we retired we made a couple changes:
Kids - All grown and financially self sufficient. We gift $15k tax free to each yearly.
Vacations - We rent a vacation cottage for a week each summer and invite kids and their families to join us.
Friends in need - have quietly helped out various good people we know that ran into bad times.

Changes now being considered 6 yrs into retirement:
Note - Bull market has driven portfolio beyond a target value we feel we will ever use. This target amount was set back when we retired and hasn't changed. Not sure yet what we'll do but considering....
Kids - may raise gifting to $30k/yr tax free.
Grandkids - may consider setting up some kind of college fund.