Gift Now or Inheritance Later

[Bestwifeever]

We won't have to deal with estate taxes; we give our kids a couple of thousand at Christmas as a gift and maybe another thousand or so during the year for a special occasion or something for their house, amounts too small to have an impact on their life choices.

Tough call on gift vs inheritance. I notice among a few of my friends who are affluent that their adult kids lump themselves in with their parents' success and belongings--one would tell my DD that "we" have this or that--it was never "my parents" have it. The kids are not quite as independent as mine and not as achieving as they might be, shall we say, certainly nowhere near their parents' level. But at that stage of financial success, perhaps it turns into a family thing (and of course their parents worked hard to give them the fruits of their labor). Not all are like that, of course, and the other offspring live the lifestyle they themselves can afford at that time without parental help.

 

[Alan]

We prefer to gift now as we are able. The older we get, the more we hope to gift.

The nice thing about gifting is that amounts under $14K per person per year don't count against your estate. For a couple gifting that's $28K per individual.

Don't count against your estate?? Not sure what that means?

If you gift more than the amounts Audrey mention then you have to file form 709 to have the gift set against your lifetime tax free allowance. We will have to do this filing next year as we are exceeding the $28k limit with a gift to our son to help him buy a house.

https://www.irs.gov/pub/irs-pdf/i709.pdf

 

[RockyMtn]

Gifting now would be fine if the recipients are mature and appreciative. You can also consider a charitable trust to reduce taxes.

The recipients are mature and would certainly be appreciative. I don't intend to gift sums in excess of $14k each year at this point. For most of our kids will probably do a monthly gift of $700 and make sure that their Roth's are fully funded. For DS (26) who has no family of his own that would probably be too much to just put in his pocket so will fund the Roth first and then split the rest between monthly living needs and his brokerage account. I'm trying to get him to understand the basics of investing as sooner or later he is going to have to manage a larger portfolio.

The grandkids certainly aren't mature and appreciative at this point (6 months to 10 years) but fat 529 plans will hopefully make them more so later.

I currently use a DAF to minimize taxes from the profit sharing and some consulting I do. The gifts will be funded from those two sources along with dividends so I won't be incurring cap gains taxes by having to sell equities and will preserve the step up in basis.

I like the idea of a "family" experience trip but will have to probably wait until the grand kiddies are a bit older. Suppose I could do just a kids trip though.

Thanks for the suggestions to all.

Edit to add: Monthly gift vs lump sum?? What do you think?

 

[mountaintosea]

My sentiment is gift now. Just my .02

 

[audreyh1]

If you gift more than the amounts Audrey mention then you have to file form 709 to have the gift set against your lifetime tax free allowance. We will have to do this filing next year as we are exceeding the $28k limit with a gift to our son to help him buy a house.

https://www.irs.gov/pub/irs-pdf/i709.pdf

Is your son married so you can also gift to his wife?

 

[CaliKid]

Your parents should set up their assets in a GST (generation skipping) trust. As you likely know it skips in name only, typically, so the money could be available to you if needed. You then should do the same with your assets for your kids. You can give assets away now in a GST trust (sometimes used to buy life insurance but not always). Go to a highly experienced estate planning attorney to get this set up correctly. There are a lot of ways to mess it up.

 

[RunningBum]

If you gift more than the amounts Audrey mention then you have to file form 709 to have the gift set against your lifetime tax free allowance. We will have to do this filing next year as we are exceeding the $28k limit with a gift to our son to help him buy a house.

https://www.irs.gov/pub/irs-pdf/i709.pdf

And if you don't have a large estate (under $5M, I believe), you don't have to worry about this as the estate won't be taxed anyway (if the limit stays the same).

 

[Alan]

Is your son married so you can also gift to his wife?

Nope, single, so the max we can give to him per year is $28k.

 

[Alan]

And if you don't have a large estate (under $5M, I believe), you don't have to worry about this as the estate won't be taxed anyway (if the limit stays the same).

Precisely. The form has a table by year showing the estate tax limits for each year, and can be used to report gifts from prior years. So I expect that if it is slashed back down to something much lower in the future, the gift this year won't come back and bite us.

In the UK (which is our primary taxing authority) you can gift as much as you wish each year but if you die within 7 years then estate taxes might be assessed on those gifts.

 

[donheff]

I agree with gifting earlier if you can afford to. We and our kids live in a HCOL area. When they are ready to buy their houses, we plan to gift the down payment. We haven't told them yet

They might be ready now if they knew the down payment was already available.

 

[Sojourner]

Monthly gift vs lump sum?? What do you think?

I would vote strongly for the lump sum. A monthly gift would quickly begin to (IMHO) corrupt their perception of their regular income and would create a sense of entitlement and dependency. Much better to give irregular, unexpected lump sums that the recipients wouldn't alter their spending habits in anticipation of.

I'd highly recommend reading chapters 5 and 6 of The Millionaire Next Door, for an excellent, well-researched, objective analysis of these kinds of issues.

 

[gerntz]

GF and I are thinking that we should start gifting some of the estate to our children and grandchildren now rather than waiting till we pass to that great lawn chair in the sky.

We have more in assets than we could conceivably spend in the next 30 years along with pensions, profit sharing and SS to top off the tank. Given that most assets are in my name we also have a federal estate tax issue. We figure that gifting now will help the kids (all employed and on their own) while they can use it given their young families and in one case a low paying labor of love job. We have opened 529's for the grandchildren but would probably ramp up those contributions to further ease the parents pain at college time.

My parents have begun gifting now as they have a state estate tax issue. None of us kids need the money but it might have come in handy when we were younger which made me think our plan might be the right thing to do.

Any experiences or thoughts that anyone has would be greatly appreciated! And no, I am not looking to adopt anyone on this forum.

- I say give a lot now & help the grandkids - to heck with the kids. I mean which give you more joy & less pain? .
- If you married your significant & transferred assets to make his/her assets up to $5M, you reduce any Fed estate taxes.

 

[gerntz]

+1

Artists, poets and those pursuing other humanities (and I would argue humanitarian endeavors, as well) work tirelessly to create something important and meaningful. The effort expended on their craft and service to others is more than they ever will be compensated for.

But none of that matters to them. Because they’re creating art or serving those who are in need. And while the “reward” ($$) may never come, they will leave a legacy.

We live in a world that needs more than equations, explanations and bottom lines on a spreadsheet. Politics won't do it, neither will engineering, science, business, technology or finance.

The humanities allow us to see the invisible. They stir something deep within us in a way that no other experience can; providing a unique perspective and are what separates us from barbarians.

It is disappointing that these worthwhile pursuits, while invaluable to our collective humanity, generally receive little in the way of monetary compensation and are too often demeaned as lacking intrinsic value. I am encouraged that there are people like you willing to materially support your progeny in such endeavors!

Well done....

If one child was near destitute, of course we'd give them extra help. But I wouldn't favor one over the other due to career choice. If being creative is more important than monetary gain, reward enough imo.

 

[audreyh1]

And if you don't have a large estate (under $5M, I believe), you don't have to worry about this as the estate won't be taxed anyway (if the limit stays the same).

As long as the exemption threshold rises with inflation, you should be OK.

But some states have lower than the Federal limit. So you have to look at your state estate exemptions and gift tax exemptions as well.

 

[Bestwifeever]

If you gift more than the amounts Audrey mention then you have to file form 709 to have the gift set against your lifetime tax free allowance. We will have to do this filing next year as we are exceeding the $28k limit with a gift to our son to help him buy a house.

https://www.irs.gov/pub/irs-pdf/i709.pdf

You and the missus must be so happy that you are able to do this and that your son will be just a bit closer to you now, lifetime tax limits or not !

 

[Alan]

You and the missus must be so happy that you are able to do this and that your son will be just a bit closer to you now, lifetime tax limits or not !

Indeed we are. Even though our daughter is delighted with what we are doing for her brother and insistent that she does not need anything from us, we will be sure that she receives an equal share in the long run. ( She earns about 4x what he does plus she has made lots of money with investment share options and the like. Plus she absolutely loves her job)

 

[Luck_Club]

I would vote strongly for the lump sum. A monthly gift would quickly begin to (IMHO) corrupt their perception of their regular income and would create a sense of entitlement and dependency. Much better to give irregular, unexpected lump sums that the recipients wouldn't alter their spending habits in anticipation of.

I'd highly recommend reading chapters 5 and 6 of The Millionaire Next Door, for an excellent, well-researched, objective analysis of these kinds of issues.

+1 for Lump sums

I've used large bonuses, good years, and windfalls to really stoke up the investments. With $28K gift you can seriously reduce debt, or buy a rental house. Much harder with $400 a month extra in the budget, thought it does make it easy to upgrade the car payment

 

[Pilot2013]

+1 for Lump sums

I've used large bonuses, good years, and windfalls to really stoke up the investments. With $28K gift you can seriously reduce debt,

I know it may seem like a "strings attached" version, but I like the idea of reducing/eliminating debt, at least as a first step. The next "gift" can be used for fun trips, down payments, etc. assuming debt has not re-emerged. And if it has...

 

[Blue Collar Guy]

I just remembered this story. I think its relevant to the topic at hand so i will relate it. When i was a teenager one of my neighbors owned a business. It was actually owned by his widowed mother. This widow had 2 children who were in their 50's. The boy (my neighbor) ran one part. My neighbor had a sister, her husband ran the other part of the business. From what i remember they gave the mother(the real owner) a weekly salary and she lived very well. The widow never stepped foot into the business as it was started by her late husband. The wife of my neighbor disliked her mother in law immensely. I believe the reason was because the mom still controlled the business on paper. She convinced the mother after years of badgering to give the business to the 2 children. I met the sister and brother in law many times., nice people, no children. My neighbor had 4 children. About 5 years after she gifts the business to them, the sister dies. The husband gets remarried a few years later and suffers a massive heart attack and dies. The widow mother is still alive as well as my neighbor. They inherit as a 50 % partner the new wife who no one knows. The wind up was they sold off the property for big bucks and the business folded. The widow mother long ago (8 years) gave her kids their inheritance early, a stranger got half of it.

 

[youbet]

Gifting now would be fine if the recipients are mature and appreciative. You can also consider a charitable trust to reduce taxes.

Would you also say that leaving it as an inheritance is only OK if the recipients are mature and appreciative?

 

[youbet]

If you gift more than the amounts Audrey mention then you have to file form 709 to have the gift set against your lifetime tax free allowance. We will have to do this filing next year as we are exceeding the $28k limit with a gift to our son to help him buy a house.

https://www.irs.gov/pub/irs-pdf/i709.pdf

I believe there are cases where you must file form 709 even if your gift (as a couple) does not exceed $28k. One case is when you gift it from a joint account, such as your joint brokerage account. The form is used to document that both spouses endorse the gift.

I haven't been doing this and recently discovered the need. Perhaps someone that knows for sure can comment

 

[xdafly]

... we should start gifting some of the estate to our children and grandchildren now ..

We just gave as a gift a downpayment of 100,000 for a 1st home to one of the kids. It results in our lifetime 5.4m "allowance" being deducted but apart from filing the IRS Form 709, no tax consequence to us or kid. Plan to continue to do more of same.

 

[kgtest]

I've received 2 gifts in my late 20s for about 20,000 each. That gift was a fricken godsend and in my opinion that extra psychologically push to build my own wealth.

It's an amazing thing to be able to receive that gift, even more incredible to give it IMHO. I want to be able to do that for my kids when I am still alive.

One of the gifts was when we wed, my in-laws covered up to a certain point of the wedding. We managed to elope for $10,000 wedding on the beach with our closest friends and family. We had money leftover that we used to pay down our own debt and a down-payment on a newer car.

The second gift allowed me to get a new roof for our home and put some into roth IRA. I feel like just that $30,000 although we never really saw $13,000 as we put it into Roth, helped us so much that we are in much better positions financially than most of my peers.

So if you have the opportunity to gift to kids who won't squander it could be the best thing that happened to them. Plus you will get a lot of steak dinners in return.

 

[Danmar]

Family experience trips are fantastic. Have done several and are planning one this September. QM2 to Europe, Paris, then a week on a barge in Burgundy. I look at it as a way to create a "portfolio of memories" that my daughter will treasure once we are gone.

 

[NW-Bound]

Gift now or inheritance later? A bit of both.

I have paid for my children college education that allowed them to graduate debt free, and have lots of disposal income right after graduation. I then helped them with down payment to buy their 1st home.

While I can help them more if they need it, currently I am happy to see that they are doing very well on their own. And they keep insisting that they do not need anything more. And so, I will play by ear from this point on.

Same as Danmar, I would like to fund some family vacation together. They just do not have a whole lot of time off however.