Gifting to adult children

[Joylush]

I want to gift money each year to my 30 year old son and daughter. Both are single. Both have good incomes. One is financially smart and responsible, the other- not so much. Both were taught well, one just valued the knowledge and applies it better.
One contributes fully to their Roth IRA as well as to their brokerage account and allows me to manage the account. The other tells me nothing. Not because I’m at all judgmental (only encouraging) but because they are likely embarrassed.
Anyway, to encourage savings I was trying to come up with a way to give them choices as far as my gifting was concerned. My thought was to offer them 100% match on any Roth IRA contributions they make. So they put in $3000, I match it with $3000. The other option is to choose a straight out $1500 gift, no requirements.
So they would be given the choice of doing nothing and with no oversight getting $1500, or saving $3000 and getting $3000 with some oversight. I suspect one would choose the higher value option and I have no idea what the other would choose. But if it was their choice and their sibling got more by doing more they couldn’t claim preferential treatment or favoritism. Does this sound like a reasonable thing to offer?

 

[MarieIG]

It doesn't have to be exact.

Suggestion: Kid #1 - I'd like to give you $1,500 to be put towards your Roth IRA. (Much as you would love Kid #1 to step up to the plate with a match, what if Kid #1 declines to do so?)

Kid #2 - you know that one is doing the IRA already; so just give it to Kid #2 to put into brokerage.

 

[ivinsfan]

It sounds like your kids are extreme opposites, and by that I mean your DD at 30 lets you "manage" her money and your DS shares nothing with you. And yes I remember you posting before about a very similar issues which why I know their pronouns.

A middle ground is what I would strive for in that you would let your DD start to manage her own money and talk to your DS and find out if he has a retirement savings vehicle.
If your son doesn't have retirement savings go simple and perhaps say I want to give you 1500 dollars to start funding this account and for your DD just give her the 1500 and outline your investment strategy encouraging to learn this for herself. Try this for the first year and then maybe talk about the matching aspect..

It's not so much about what is fair, it's your money until you give it away. What is your goal as far as giving away this money?

 

[Joylush]

It sounds like your kids are extreme opposites, and by that I mean your DD at 30 lets you "manage" her money and your DS shares nothing with you. And yes I remember you posting before about a very similar issues which why I know their pronouns.

A middle ground is what I would strive for in that you would let your DD start to manage her own money and talk to your DS and find out if he has a retirement savings vehicle.
If your son doesn't have retirement savings go simple and perhaps say I want to give you 1500 dollars to start funding this account and for your DD just give her the 1500 and outline your investment strategy encouraging to learn this for herself. Try this for the first year and then maybe talk about the matching aspect..


It's not so much about what is fair, it's your money until you give it away. What is your goal as far as giving away this money?

I think I asked a similar question about three years ago, so you have quite the memory. One child asked me to manage the account because they know how well-versed I am at financial planning and management. Who wouldn’t take advantage of a free service like that? Oh, I know, a spendthrift sibling.

I don’t want to be an enabler. I would prefer to give each of them the maximum amount allowable per year without having to file a gift tax return, $15,000 each. But I feel stuck because I’d be 100% comfortable doing that for one and feel 100% foolish doing it for the other. So it’s like the responsible one is losing out in my attempt to be fair.

What is my goal? To reduce my estate size so as to avoid having my estate pay estate taxes in the future. To encourage financial responsibility and behavior in my offspring and not drop a boatload of money into the hands of one who will not manage it wisely.

The most financially prudent thing to do would be leave everything to one child and give them oversight of what is left to the other. But that would not benefit their relationship no matter how well intended so is not a consideration. If the less responsible one can show me they are responsible it would benefit them greatly.
I’ve seen the damaging effects of rewarding irresponsible behavior and I won’t go that route.

 

[ivinsfan]

Joylush it doesn't have to be all or nothing...could you have a reasonable conversation with the one you consider spendthrift about your starting and funding a retirement account for them?

Offer to manage it like you are doing for his sister, what would happen if you did that.

You and your son have different ideas about money, that probably won't change. But having said that, you most likely have some common ground where you can meet in the middle.

 

[pacergal]

We have treated both our kids equally with gifting. One was always better at spending than saving, but over the years has done almost a 180.
Once we give it away, it is theirs to use as they need/want too. Bills, fun, savings, I don't care. I don't want to have control over their choices. They are adults.

Thankfully, addiction issues are not involved, as that may put a twist on decision making on our part.

 

[Joylush]

We have treated both our kids equally with gifting. One was always better at spending than saving, but over the years has done almost a 180.
Once we give it away, it is theirs to use as they need/want too. Bills, fun, savings, I don't care. I don't want to have control over their choices. They are adults.

Thankfully, addiction issues are not involved, as that may put a twist on decision making on our part.

That would be my goal as well. It’s just a bit scary.

 

[pacergal]

OP-- yes it was a leap of faith for the one who was a "spender". I had to bite my tongue many many times and take a deep breath.
However, I knew in my heart, that if I treated them differently, it would cause irreparable harm to both our relationship and the siblings relationships.

 

[gayl]

I think I came here a year ago with a similar question. Fast forward 1 yr.


GS1' Roth has done very well and although he was involved with set up, finding investments, funding he calls it my Roth not his. So he did his own in 2020.

DS was always great with investments. Now he questions himself (I think losing almost everything in the divorce caused this). I gave him a Hanukkah check which he has not deposited. He just told me to invest it for him because he doesn't know what he's doing.

So you never know where they'll be next year!! This year: DD cash, DS Roth if he insists, GS1 zelle which is like cash .... of course he zelled me back when I split my stimulus check (that's not how it's supposed to work)

 

[savory]

I do not have a suggestion for how to provide an incentive but I did want to know, when did our kids become your kids? We must have attended the same parenting school?

 

[Joylush]

I do not have a suggestion for how to provide an incentive but I did want to know, when did our kids become your kids? We must have attended the same parenting school?

It’s frustrating. I feel for kids who weren’t taught well or who didn’t have good financial role models but this absolutely wasn’t the case for my two kids. Heck they even both had small businesses as children to teach them the entrepreneurial mindset (they both taught violin to younger students and started a neighborhood garbage can retrieval service). Both had Roth IRA accounts at age eight and had their own personal checking accounts then as well. They’ve literally been taught how to manage money since around age eight.

We also always had rental properties. So they know what makes a good renter and we’re taught how to maintain houses. First thing my son does after moving out on his own is to get a pit bull. of all the things not to get if you want to find a quality place to rent.

My son can’t fix a thing. We recently tried to instruct him how to change out a dryer cord. When asked if he had a socket set, he said, “A what?”

Whereas his sister was just just telling me how she reset the thermostat on her water heater after troubleshooting it. When I asked her how in the world she figured that out she said I remember you had that issue after a power outage at one of the rentals and you told me there was a reset button so I watched a YouTube video and found where it was located so I didn’t have to ask you where it was.

Both kids were exposed to the same things, at the same times being the same ages. I don’t get it either. But one takes after me and the other takes after their father, an incredibly smart, unhandy, high risk personality type.

 

[Mark1]

I don’t want to be an enabler. I would prefer to give each of them the maximum amount allowable per year without having to file a gift tax return, $15,000 each. But I feel stuck because I’d be 100% comfortable doing that for one and feel 100% foolish doing it for the other. So it’s like the responsible one is losing out in my attempt to be fair.

What is my goal? To reduce my estate size so as to avoid having my estate pay estate taxes in the future. To encourage financial responsibility and behavior in my offspring and not drop a boatload of money into the hands of one who will not manage it wisely.

How about starting out with stating your goal of transferring estate money to them while your alive. Start with an offer to give them $6,000/yr to fund a ROTH IRA for their retirement provided that they send you a copy of the year end statement showing that the money is still within the ROTH account and has not been used to fund their current life style. If only one takes you up on the offer and the other doesn't that's fine. Of course, in my opinion you should just let your son make his own decisions on how he wants to invests the money and not worry about how well he manages it at this point. If he invests it in a CD paying 0.5% when he sends you the year end statement, just bite your tongue and send him next year's check.

 

[twaddle]

Great thread. Please give us an update in 10 years.

My heuristic would be "which one of you is going to take care of me when I need you to?"

 

[Joylush]

How about starting out with stating your goal of transferring estate money to them while your alive. Start with an offer to give them $6,000/yr to fund a ROTH IRA for their retirement provided that they send you a copy of the year end statement showing that the money is still within the ROTH account and has not been used to fund their current life style. If only one takes you up on the offer and the other doesn't that's fine. Of course, in my opinion you should just let your son make his own decisions on how he wants to invests the money and not worry about how well he manages it at this point. If he invests it in a CD paying 0.5% when he sends you the year end statement, just bite your tongue and send him next year's check.

That’s a good idea. How he invests or spends his own money is not my business. But I’m just not into enabling him to recklessly waste my money. I don’t want to be funding what I feel are poor choices. It would be worse than flushing the money down the toilet to me. And I’ve always been a big believer in the value of living with the consequences of your choices.

So often I’ve seen irresponsible children bailed out, supplemented and supported because they were needier due to bad decisions at the expense of the responsible child. Those children never learn to stand on their own two feet. I am just not that parent.

 

[Badger]

That’s a good idea. How he invests or spends his own money is not my business. But I’m just not into enabling him to recklessly waste my money. I don’t want to be funding what I feel are poor choices. It would be worse than flushing the money down the toilet to me. And I’ve always been a big believer in the value of living with the consequences of your choices.

So often I’ve seen irresponsible children bailed out, supplemented and supported because they were needier due to bad decisions at the expense of the responsible child. Those children never learn to stand on their own two feet. I am just not that parent.

How your children handle money is fine to know while you are alive but are you going to leave them an inheritance? What do you think will happen then?


My step son and step daughter are in their 50s. We have given them both $14k/yr. for the past 3 years. It makes my wife happy that she can help them out while we are still alive. I love them both and it makes me happy too. We busted our keesters doing without and saving every penny while living a frugal lifestyle and would like to think they are using the money wisely and reducing their stress. They have both been told each time we gift that we might not have it next year but right now we are able to give. They don't know if they will be getting much of an inheritance but after seeing our life style over the years and modest home I'm sure they don't expect much. They will be surprised. I just hope they will be capable of managing it but there won't be much I can do about their priorities. If they waste it they know there won't be more in the future.



Cheers!

 

[youbet]

Those children never learn to stand on their own two feet.

This frequently happens to children whose mothers manage their IRA's for them instead of teaching them to do it themselves and backing off.

 

[RetireeRobert]

I treat my three kids equally as to gifting.

One has some very good financial acumen and skills, one ok with money but somewhat less skilled/knowledgeable at investing, the third not a spendthrift but also the worst at investing skills/knowledge.

So, I advised the two kids to check in for advice and investing ideas with the first one.

I don't know if they are taking my suggestion or not!

 

[Joylush]

This frequently happens to children whose mothers manage their IRA's for them instead of teaching them to do it themselves and backing off.

I would suggest an adult child who has amassed a large retirement savings and investment portfolio by age thirty has shown they know how to stand on their own two feet already. Seeking financial advice from a professional is often a wise choice- especially when it’s free of charge and you know without a doubt your advisor is 100% invested in your best interest and success and not merely concerned with making a commission.

One of the wisest things you can do is find a mentor you admire and learn everything you can from them. That’s my philosophy anyway.

 

[Joylush]

How your children handle money is fine to know while you are alive but are you going to leave them an inheritance? What do you think will happen then?
Cheers!

Presumably a substantial inheritance. What happens then is what scares me since statistics show 70% of Families Lose Their Wealth in the 2nd Generation. If managed correctly it could last for many generations to come.

So I don’t know what will happen then. As it stands now I suspect half will be squandered and half will be preserved. But I won’t be around to see it. That sounds easier than having to witness it I guess.

 

[youbet]

I would suggest an adult child who has amassed a large retirement savings and investment portfolio by age thirty has shown they know how to stand on their own two feet already. Seeking financial advice from a professional is often a wise choice- especially when it’s free of charge and you know without a doubt your advisor is 100% invested in your best interest and success and not merely concerned with making a commission.

One of the wisest things you can do is find a mentor you admire and learn everything you can from them. That’s my philosophy anyway.

But, but, but, you said

One contributes fully to their Roth IRA as well as to their brokerage account and allows me to manage the account.

That's very different from what you are saying now. Your original words and tone really implied you are very controlling in the situation. If not, great. I just took you at your word that you were managing the account, not mentoring your daughter managing the account.

Letting go, in all its forms, is the toughest form of parenting..........

 

[Aerides]

Are your kids close with one another? Would you prefer they be closer?

I think a non-financial consideration is the impact your gifts might have on their relationship with one another - especially if different or conditionally established that favors one over the other.

 

[JDARNELL]

Presumably a substantial inheritance. What happens then is what scares me since statistics show 70% of Families Lose Their Wealth in the 2nd Generation. If managed correctly it could last for many generations to come.

So I don’t know what will happen then. As it stands now I suspect half will be squandered and half will be preserved. But I won’t be around to see it. That sounds easier than having to witness it I guess.

I have been on this train of thought for the last few years. We focused on making sure the family was taken care of, kids through college, and have the ability to launch. We are in the throws of that now with a recent college graduate and one that has two more years of school. They are both doing well and will take some bumps along the way I am sure. We have them reading 3 books that we talk about regularly

1. The Richest Man in Babylon
2. The Millionaire Next Door
3. The Total Money Makeover

One of my goals for 21 into 22 is estate planning. It is clear that our kids today could not handle our estate based on their knowledge nor would I want to deny them of the opportunity to learn how to launch and plan for their financial future or saddle them with having to manage a large portfolio until they are in their 30s. By that time I should have an idea of how they are doing on their own and see if they are taking our advice or not. I am fine with them to taking my advice as its their choice. So

The reality of it is we know our kids and may have the chance to know future grandkids one day. Past that not my circus not my monkey. Hopefully we will have prepared our kids to think about their kids and their grandkids future and prepare for them the way we have prepared for our kids. Again I don't want to deny them this opportunity.

We have decided that we will make sure our kids are well taken care of and provide education for any future grandkids and probably a little more. Beyond that we will be donating the amount above and beyond to the charities, causes, and things that align with our views. Our money our choice.

 

[Joylush]

Are your kids close with one another? Would you prefer they be closer?

I think a non-financial consideration is the impact your gifts might have on their relationship with one another - especially if different or conditionally established that favors one over the other.

Yes, they are close and I absolutely agree with what you’ve said.

I’ve seen relationships devolve when the bad decision making kid is treated with financial benefits and bailouts. I assume the opposite would be true when good behavior is rewarded as well even though I believe in rewarding good behavior and smart choices. In essence it seems like once again the responsible one is being left out so as not to hurt the poor choice maker’s feelings.

But I do believe in equal treatment is very important whether I agree with their personal choices or not.

 

[Joylush]

But, but, but, you said

That's very different from what you are saying now. Your original words and tone really implied you are very controlling in the situation. If not, great. I just took you at your word that you were managing the account, not mentoring your daughter managing the account.

Letting go, in all its forms, is the toughest form of parenting..........

Mentoring but I have management permissions because I’ve been granted the authority to jump on opportunities on her behalf when they arise. For instance I was able to jump on an opportunity for her which netted her a 200% return on a particular stock in just a few days. She’s aware of how I manage my portfolio and didn’t want to miss out if I saw an opportunity I thought would benefit her. Although if anything she runs the risk of me being too conservative with her assets because I don’t like the thought of her losing due to a recommendation or decision I’ve made. Except for those rare occasions she’s fully involved in all decision making because the most important thing is that she learns.

Wise words you have about letting go....but what I’ve found is that it’s very freeing. I’ve done it well (I think) in most areas, but am still struggling with the gifting part because I want to see it grown and not squandered. More like prove to me you’re responsible with your own money and I’ll give you some of mine to be responsible with.

 

[Golden sunsets]

Joylush, you might be interested in our own journey with our 2 children who handled financial matters very differently from the get go.

DD, the older by 2 years, spent more than she had coming in for years, from college age on. Credit cards of Mom and Dad came in with surprise bills over agreed upon amounts with regularity while in college. I blame myself entirely for allowing this behavior to take hold and persist. She had a great fondness for fashion, clothing, and all things luxury and in fact has a job in that industry. Add to that the fact that her post college career ended up in NYC, a city unaffordable to all college graduates but a few. We needed or should I say decided to subsidize her living expenses in NYC to make sure that she lived in a safe environment.

At that point however, we fortunately recognized that we had helped to create the situation and structured our subsidy to force her to fund not only an IRA and 401K but also build an emergency fund. We realized that we had done her no favors by enabling this lifestyle. The subsidy lasted for several years, but during that time she gradually became accustomed to transferring a portion of her paycheck to retirement savings and emergency fund and over time, as we reduced our subsidy eventually to zero as her salary increased, she never changed the habit of saving. At her request we managed her Roth and helped her to select her 401K funds. She is now rigidly committed to funding not only her Roth and 401K but also a taxable brokerage and CD ladder. Her investment assets just crossed $700K and she's quite focused on her Asset Allocation. If we had it to do over again, we would absolutely have done it differently, but we are thrilled at her progress and success.

Our son has had a very different experience with personal finance. He has never valued things. He values experiences, versus the brand of jeans he wears, not that there isn't also a cost to experiences. One of my favorite stories about DS is the class trip he took to DC in 8th grade. We sent him off with $50 in spending money for the 4 day trip. He came back with $58. When asked how that happened, he explained that all the trinkets he saw that his friends spent their money on were junk. He also sold his pizza slices from orders to his classmates.

He spent his high school and college years carefully watching his funds. He traveled extensively, spent a year in Paris while in college and while there moved to the remote 19th Arrondisemont to save rent money. By comparison, DD when she spent a semester in Paris chose a rental on the Left bank across the street from the Musee D'Orsay. DS spent a summer traveling in Central and South America staying in youth hostels, a summer traveling through Mongolia, across Russia on the Orient Express and then through Europe, all at no cost to us. He's never needed a penny in assistance from us since graduating from college and self funded his graduate degree. His assets now exceed 1MM.

All this to say that both children traveled a very different path and ended up being responsible adults with successful careers and now have surprisingly similar approaches to personal finance.

Our approach to gifting to them has been to keep a mental tally on how much we have funded, but the details have varied significantly. They both know however that we intend for their inheritance to be equal. I don't think it would be good for their relationship with each other if they thought they would not be treated equally.