Gifting to adult children

[SomedaySoon]

Very interesting topic. We have two children mid 30's. One is married and doing very well, the other not as much as the Covid-19 situation has greatly affected employment and earnings. I started gifting 5K equally in 2019, 10K each in 2020, but have given the more challenged offspring another 10K this month. Does it bother me that it might be considered inequitable ? Eh its my money.
I am happy that both are adult, mature, intelligent and hard working. I don't feel that I need to control what they do with the money.

[Golden sunsets]

Quote:

Originally Posted by SomedaySoon Very interesting topic. We have two children mid 30's. One is married and doing very well, the other not as much as the Covid-19 situation has greatly affected employment and earnings. I started gifting 5K equally in 2019, 10K each in 2020, but have given the more challenged offspring another 10K this month. Does it bother me that it might be considered inequitable ? Eh its my money. I am happy that both are adult, mature, intelligent and hard working. I don't feel that I need to control what they do with the money.

You raise a good point. If one child were truly struggling, I wouldn't think twice about providing more as needed, and if there were a true need such as a disability, then a special needs trust might be in order.

[Joylush]

Quote:

Originally Posted by kjpliny My parents gifted me no money, and I have learned not to expect anything I didn't earn myself. I took this to be a good life lesson in self-reliance, tenacious persistence and delayed gratification...understanding any resulting pride can come with it's own flaws.

Well said. After further consideration I’m limiting my “gifts”. I just can’t stomach being an enabler of bad choices with my money. If they don’t value their own, they will value mine even less. I’d rather spend it myself or give the extra to someone who needs it, doesn’t expect it, and who will appreciate it. They will get some along the way and more in the end.
But nobody really deserves to get a tremendous amount for doing absolutely nothing or who makes choices I’m opposed to.

I came to this conclusion after relaying to the responsible child my plan. She knows what would be done for her would be done for her brother and she advised against it knowing it would affect her as well. She knows me and she knows her brother and feels it would only bring me disappointment, not any joy in giving. It’s seems like many parents have no problems freely giving and aren’t bothered if the money is squandered or ill spent. I don’t think I could ever be that parent.

I’d love to give more but it’s just not the right time. Some more maturing needs to happen first. I will re-evaluate down the road. In the meantime I plan to just start spending more.

I will always keep things equal. The only time I feel equal doesn’t apply is when there is a special needs child requiring extra care. If one child was struggling (depending on the reason) they might get more that year but I’d make it up to the other one later or give equally if it meant they both got more.

[Joylush]

Quote:

Originally Posted by SomedaySoon Very interesting topic. We have two children mid 30's. One is married and doing very well, the other not as much as the Covid-19 situation has greatly affected employment and earnings. I started gifting 5K equally in 2019, 10K each in 2020, but have given the more challenged offspring another 10K this month. Does it bother me that it might be considered inequitable ? Eh its my money. I am happy that both are adult, mature, intelligent and hard working. I don't feel that I need to control what they do with the money.

And if they weren’t mature, making intelligent choices or particularly hardworking would you do the same and not care how your money was being used?

Because if I knew mine were making smart choices, and exhibited strong moral character there would be no need to worry or desire to control.

But it’s gotten me thinking for sure. I think I may very well just start owner financing my rental properties instead of outright selling them. Then when I’m dead there will still be a steady stream of income coming in.

[Montecfo]

Hi Joylush,

This is tough for me as I am contemplating the same. Just one son and I think he is rather financially savvy, saves and invests.

The thing I wonder about is kids becoming dependent on parental generosity. And also do not want him to feel we lack confidence in him.

These concerns have paralyzed me so far.

Have you talked to your son about saving and investing recently? That might be a better approach than trying to control how your gifts are used.

For our son I would probably give the money without strings but suggest he use at least part of it for Roth, or for brokerage type investing and offer to help.

You seem to have done a fantastic job of preparing them. We always envision our kids will soak it up, but that does not always happen.

[Rambler]

We also have two kids, 33 yo son and 29 yo daughter. Daughter is more financially conscientious, Son is pretty wasteful with his money but his wife seems to have it together.

Without any desire to get into a political battle, there are proposals to reduce the death tax again such that it would significantly dig into our kids’ inheritance, so we are actively considering how to gift, within the limits and without having to file gift forms, yearly so that the money is not wasted on things that are not our intention for the gift...the intention being to help them build for their own retirements. So, we are talking about gifting amounts that would go into Roth accounts and taxable accounts. The condition for subsequent gifts would be that there hasn’t been any money removed from the account. They would be free to invest as they please, but also free to ask advice, if they felt they needed more (they will get advice with the first gift). We’ve also helped fund a down payment for a home for our daughter, and will do the same for our son when they are ready to buy a home. What we don’t want to see is for us to die when they’re about 45, they inherit money without ever having saved a dime of their own, only to quit their jobs and burn thru the inheritance before they are 50. If they earn their own and FIRE at 50, that is another thing altogether.

[Joylush]

Quote:

Originally Posted by Rambler We also have two kids, 33 yo son and 29 yo daughter. Daughter is more financially conscientious, Son is pretty wasteful with his money but his wife seems to have it together. Without any desire to get into a political battle, there are proposals to reduce the death tax again such that it would significantly dig into our kids’ inheritance, so we are actively considering how to gift, within the limits and without having to file gift forms, yearly so that the money is not wasted on things that are not our intention for the gift...the intention being to help them build for their own retirements. So, we are talking about gifting amounts that would go into Roth accounts and taxable accounts. The condition for subsequent gifts would be that there hasn’t been any money removed from the account. They would be free to invest as they please, but also free to ask advice, if they felt they needed more (they will get advice with the first gift). We’ve also helped fund a down payment for a home for our daughter, and will do the same for our son when they are ready to buy a home. What we don’t want to see is for us to die when they’re about 45, they inherit money without ever having saved a dime of their own, only to quit their jobs and burn thru the inheritance before they are 50. If they earn their own and FIRE at 50, that is another thing altogether.

You have summed up all my thoughts and feelings with precision. I will be hit with the death tax and that is definitely a concern. So I will be forced to spend to try to mitigate both of the situations you described. I would love to eventually have a financially responsible daughter-in-law if my son doesn’t get there on his own.

[ChrisC]

"Prepare the child for the path, not the path for the child." If you've done this, I don't think you need to attach strings to your gifts. I really don't see the parental wisdom that makes gifts conditional on the child undertaking some financial conditions (e.g. money has to go into a Roth account or could only be spent with parental approval). If you gift something, gift it, period! And if it's wasted, then there's a lesson to be learned there for the child and the parent. If you think the gift is going to be wasted, don't give it and spend more time with the adult child covering financial literacy and responsibility -- preparing the child for the path forward.

I'm all in favor of gifts to adult children as long as it doesn't sidetrack our parental mission to advance children to become happy, responsible adults. I've known parents who began funding Roth Accounts for their teenage children and continue to fund them into their late 30's, without telling their children, so that their children would have big Roth Accounts when they retire -- what is the point of this type of retirement savings if your children can't even save for themselves. Their reasoning for not telling their children was that their children are financially irresponsible and would spend it all if they found out about the accounts. So, what do these parents think when they're not around and their adult children get their hands on the Roth IRAs.

When my RMDs start in a few years for me, I plan to gift each one of my children the maximum gift exclusion amount, with no strings attached. And I'm sure they'll find good use of the money. Additiionally, we have started gifting family experiences to our children -- paying for entire family vacations. I do believe it's preferable to give with a warm hand, rather than a cold hand from the grave -- and there's plenty of cold cash they'll get from us too.

[Aerides]

Quote:

Originally Posted by Joylush After further consideration I’m limiting my “gifts”. I just can’t stomach being an enabler of bad choices with my money. If they don’t value their own, they will value mine even less. I’d rather spend it myself or give the extra to someone who needs it, doesn’t expect it, and who will appreciate it. They will get some along the way and more in the end.

I think this is the right approach for you. Gifts should come freely with no conditions, not a carrot or reward system. (Yes you can give money for those reasons if you like, but IMO, gifts are not attached to goal posts that you define.)

I think it's far more important these two young people make their own paths, learn from mistakes, etc. They are only about 30 and there is plenty of time to meander and figure what works for them individually, towards their own goals, with the independence that can't happen if every decision is somewhat influenced by Dad's approval-via-check.

FWIW, when I was 30? Over 10k in credit card debt, no house, no savings other than putting the minimum in my 401k, bad marriage, etc. I corrected those things over the next few years, and ER'd at 46, but if you'd taken a snapshot of me at that time, your son would look pretty great in comparison.

[Joylush]

Quote:

Originally Posted by Aerides I think this is the right approach for you. Gifts should come freely with no conditions, not a carrot or reward system. (Yes you can give money for those reasons if you like, but IMO, gifts are not attached to goal posts that you define.) I think it's far more important these two young people make their own paths, learn from mistakes, etc. They are only about 30 and there is plenty of time to meander and figure what works for them individually, towards their own goals, with the independence that can't happen if every decision is somewhat influenced by Dad's approval-via-check. FWIW, when I was 30? Over 10k in credit card debt, no house, no savings other than putting the minimum in my 401k, bad marriage, etc. I corrected those things over the next few years, and ER'd at 46, but if you'd taken a snapshot of me at that time, your son would look pretty great in comparison.

Good point. I agree. That’s my fear. That gifting too early won’t allow them to experience the consequences of their choices and impede their opportunity to learn from them. Rather than interfere with their character development I will have to accept the government will be getting more of my earnings than I’d like. Or find someone else with more maturity to gift to.

[Retch The Grate]

I think I've mentioned before, my parents started giving my brother and I the max annual gift each year about 12 years ago. They are going to transfer their wealth to us when they die anyways, and they wanted to start doing it while they are around to enjoy how it helps us out.

My brother works in management consulting, has made a LOT of money. I've spent my career making video games and have not made anywhere near what he has (there have been years where his income was literally 5x mine, and I live in the SF Bay area and get paid decently, though not engineer level). The gift money I think was a nice little bit of fun money for him and his wife, and some help with cash when they needed a lump sum a number of years ago for their house. In contrast, the money really boosted my ability to comfortably save and invest more than just the 401k + Roth annual limit and was instrumental to me hitting FI, and then un-hitting it by buying a bay area house.

I think at this point my brother and I have roughly similar net worths, and we both seem to deeply appreciate our parents' generosity and have had our lives positively impacted by it. But we were both in our 30s, established in our careers and living our lives well and responsibly before our parents started giving on that scale. My parents seem to be happy about the impact they have on our life, in a "getting to enjoy their wealth" way, not a "controlling the kids" way.

It does seem to be a deeply "it depends on the kids" thing how it turns out.

[steveark]

In my opinion, any kid that let's dad manage their investments is neither smart nor an adult.

[Sunset]

Quote:

Originally Posted by Joylush Good point. I agree. That’s my fear. That gifting too early won’t allow them to experience the consequences of their choices and impede their opportunity to learn from them. Rather than interfere with their character development I will have to accept the government will be getting more of my earnings than I’d like. Or find someone else with more maturity to gift to.

First of all, I think all parents of normal children should spend lavishly on themselves without regard to conserving the money for the children.
I always told my DM to go ahead spend my inheritance !!

If a person cannot figure out how to spend quite a few hundred thousand per year, then they are not putting in the effort. I don't have that much money so I cannot tell you what it would be like.

Lastly, if the concern is the death tax , remember it's only the money above the limit that is taxed (I think) so even if it reverts to just 5 Million, that plus the remaining ~60% will be PLENTY.

[iloveyoga]

Quote:

Originally Posted by kjpliny My parents gifted me no money, and I have learned not to expect anything I didn't earn myself. I took this to be a good life lesson in self-reliance, tenacious persistence and delayed gratification...understanding any resulting pride can come with it's own flaws.

My parents gave me this gift and I tried to do the same for our kids.

[DawgMan]

As discussed, gifting kids $$ can be a slippery slope. There can be a fine line between creating a sense of entitlement and helpful gifting that may be different for all of us with our own kids. When my wife and I were first married, 33 years ago, my FIL gifted us $1K each year around Christmas. After a couple of years, we naturally thought it was coming and actually started mentally spending it before it showed up. Then after about 5 years, it stopped and it almost felt like we were getting short changed... like we were entitled to it!

Fast forward to today, we are playing around with the right kid gifting strategy we want to employ with our 4 kids (and soon to be 3 grandkids). The grandkids can can give you an opportunity to definitely burn some dough (i.e. 529 accounts, clothes, toys, baby misc.) which has a net affect of helping the kids. For now, in addition to the grandkid spend, we are choosing to be strategic by letting the kids individually make their own financial decisions based on their means and then come behind with a surprise gift. Eg, my married son is having his first baby and is upgrading one of his cars to a family vehicle, which he has shared with me he plans to finance. In his case, he is buying a car well within his means/good decision based on what I know about his whole situation/how he handles money. I will wait until he buys the car, maybe even makes his first payment, then come in and write a check and make his loan go away. He will be told this is a 1 time gift and not to tell his sisters as it will all even out over time. My thinking here is he made a decision within his means, he was prepared/able to handle the payments, but dad comes in and makes his life a little easier with no guarantees of any annual gifts. Alternatively, if I come to him first and say , "I know you are looking for a new car and I would like to give you $25K towards it", there is a natural tendency to say "supersize" your purchase as opposed to buying the car you would have on your own.

Anyways, that's our plan for now... subject to change at any time!

[Joylush]

Quote:

Originally Posted by steveark In my opinion, any kid that let's dad manage their investments is neither smart nor an adult.

I think that’s too broad of a generalization. It would depend on the qualifications and experience of the parent/manager. It’s not something any old parent is suited for but very well may be the best choice ever.

[Joylush]

Quote:

Originally Posted by DawgMan As discussed, gifting kids $$ can be a slippery slope. There can be a fine line between creating a sense of entitlement and helpful gifting that may be different for all of us with our own kids. When my wife and I were first married, 33 years ago, my FIL gifted us $1K each year around Christmas. After a couple of years, we naturally thought it was coming and actually started mentally spending it before it showed up. Then after about 5 years, it stopped and it almost felt like we were getting short changed... like we were entitled to it! Fast forward to today, we are playing around with the right kid gifting strategy we want to employ with our 4 kids (and soon to be 3 grandkids). The grandkids can can give you an opportunity to definitely burn some dough (i.e. 529 accounts, clothes, toys, baby misc.) which has a net affect of helping the kids. For now, in addition to the grandkid spend, we are choosing to be strategic by letting the kids individually make their own financial decisions based on their means and then come behind with a surprise gift. Eg, my married son is having his first baby and is upgrading one of his cars to a family vehicle, which he has shared with me he plans to finance. In his case, he is buying a car well within his means/good decision based on what I know about his whole situation/how he handles money. I will wait until he buys the car, maybe even makes his first payment, then come in and write a check and make his loan go away. He will be told this is a 1 time gift and not to tell his sisters as it will all even out over time. My thinking here is he made a decision within his means, he was prepared/able to handle the payments, but dad comes in and makes his life a little easier with no guarantees of any annual gifts. Alternatively, if I come to him first and say , "I know you are looking for a new car and I would like to give you $25K towards it", there is a natural tendency to say "supersize" your purchase as opposed to buying the car you would have on your own. Anyways, that's our plan for now... subject to change at any time!

I think this is a great idea. I did something very similar. Daughter asked for car buying advice and negotiation assistance. I thought she was making wise choices. She had however come prepared to pay cash for the car which after trade-in would cost her $20,000. I blindsided her by telling her to write her check for 1/2 the amount as I was covering the remainder. She insisted it wasn’t necessary and she never expected me to do that.

And I explained that’s exactly the reason why I want to do it. I believe in rewarding smart choices and not enabling bad ones.

My only objection is the part you said about “not telling your sisters”. I disagree with that completely. I fully disclose to both of mine any gifts to avoid any appearances of favoritism and simply tell them eventually everything will be evened out. Fast forward a few years:

Son needed a vehicle. I had an awesome truck that he loved and I didn’t really need. It was less than a year old with 4,000 miles on it that I’d paid $35,000 for. I offered to sell it to him for $20,000 and if he pitched in $10,000 cash I’d match the $10,000 as a gift so his out of pocket would be $10,000. Or he could opt not to use his own money and get a loan for $20,000 to pay for it. Either way he getting a deal.

Because his deal turned out to appear even better than his sister’s deal I ran it buy her and expressed my feelings that it seemed to benefit him more than her because of how much I’d discounted the truck. She reminded me that the car she’d traded in was our college graduation gift to her so I hadn’t accounted for the value that gave her in the deal. We determined I’d already made things pretty well even.

When they know you bend over backwards to be open, honest and as fair as possible it lessens the possibility of resentment. I just don’t like the idea of secrets at all.

[Joylush]

Quote:

Originally Posted by Sunset First of all, I think all parents of normal children should spend lavishly on themselves without regard to conserving the money for the children. I always told my DM to go ahead spend my inheritance !! If a person cannot figure out how to spend quite a few hundred thousand per year, then they are not putting in the effort. I don't have that much money so I cannot tell you what it would be like. Lastly, if the concern is the death tax , remember it's only the money above the limit that is taxed (I think) so even if it reverts to just 5 Million, that plus the remaining ~60% will be PLENTY.

Yes of course it will be plenty. But knowing 40% any amount over that will be taken from me (yes, I’d dead) does not sit well with me. I see no justification in the government confiscating upwards of half of someone’s net worth just because they died. So I will do my best to avoid it. As I’ve mentioned, I believe in rewarding good financial behavior, not penalizing someone for it.

[DawgMan]

Quote:

Originally Posted by Joylush My only objection is the part you said about “not telling your sisters”. I disagree with that completely. I fully disclose to both of mine any gifts to avoid any appearances of favoritism and simply tell them eventually everything will be evened out. .

Well, my thought is to be stealthy about it as 1 yr it may be a car for 1 kid, the next year a house down payment for another. My kids know I believe in keeping the score even over time. What I want to avoid is say my girls seeing I assisted in buying a car for my son and then they immediate think they are getting one too. When I say “don’t tell your sisters” it also comes with a “note, I will be doing something equitable with your sisters at the right time”.

[youbet]

Quote:

Originally Posted by Joylush I think that’s too broad of a generalization. It would depend on the qualifications and experience of the parent/manager. It’s not something any old parent is suited for but very well may be the best choice ever.

Here we go with that word "manage" again. Sometimes you sound like you're actually advising/teaching/mentoring your daughter in investments. But most of the time you sound as though you're literally "managing" her accounts. Which is it?