Gifting Money to Our Kids

[Dash man]

We consider our two daughters-in-law family, and being the mothers of our grandchildren, we want them taken care of too. We don’t consider divorce in our gifting and make the checks out to each couple, and feel a gift is a gift, so we don’t try to tell them how to use it. We do consider divorce in our estate planning since we wouldn’t want a new spouse to get any of our estate.
As much as I’d like to make equitable between our two sons, sometimes life throws a curveball. One son had twins. He stays home to care for them because it wasn’t worth him working just to pay for childcare. He also struggles finding jobs with decent pay even though he graduated college. We help him and his family more than our other son, where both he and his wife are making a good living. They started as baristas, had college paid for by their company, and son works at corporate and daughter-in-law manages a successful store.
We’ve set up 529s for each of the grandkids with a goal of paying for a top state school. If they choose to go private they can make up the difference. If they choose not to go to school, it can pay for a trade school or there are plenty of cousins that could use it.
Life is good.

 

[sengsational]

I thought the MND idea was that putting your kid in a higher class neighborhood than they could afford without assistance was the problem. So maybe a better idea is to wait for the house purchase (unassisted), and follow it with the gift to get out of the PMI zone.

 

[Beachcomber]

Great thread! Two step sons I gift have both already divorced and remarried - with kids from first and 2nd marriage. One ex-wife is very sweet but poor and we still gift her some. The other re-married and is well off, so no gift to that ex.

I always thought that our peak earning years are misaligned with our peak spending years (house, children, etc) so I see no harm in helping them out. They are both productive and have good careers.

My parents gifted us kids as a way to min. taxes then. We were taught the value of a dollar from a young age and thus do not live extravagant lifestyles.

Funny, an f 150 sits in my drive while my wife has a Honda Passport. I did read MND many years ago and abided by many of it's principles.

 

[ivinsfan]

I thought the MND idea was that putting your kid in a higher class neighborhood than they could afford without assistance was the problem. So maybe a better idea is to wait for the house purchase (unassisted), and follow it with the gift to get out of the PMI zone.

Yes this is kind of common sense, but it can be very location dependent as well.
Reminds me of my pet housing peeve, when a couple buys a smaller, affordable house and the ahat relatives, Say nice starter house or nice little house.. Shut the heck up.. you don't need to add anything between nice and house.

 

[kcowan]

I gift $6k each year to my two kids and $40k over 4 years to help with college for each of 5 GCs. In Canada, that helps the GCs a lot.

After the last GC graduates, we will rethink appropriate level to continue.

 

[Crewer]

I'm glad to know I'm not the only one gifting my adult kids. Each situation is different, of course, and I doubt TMND conclusion applies to every kid. I figure the kids can use it now and the amounts we gift are small enough that I figure their inheritances can fund their retirements if necessary. I was even delighted when DS and his GF spent 5 weeks in Europe a year and a half ago - on the cheap and not all on our dime but definitely choosing that over IRA deposits. And while many people who haven't graduated from college do well, my experience has been that the ones I know do well for awhile but fall farther behind later and have definitely had a problem during this Covid thing. But my sampling is not large so maybe I'm wrong. People with college degrees seemed to have had more options. In fact the Covid thing has made a couple non-degreed people I know, both in their 50s - return to college, both for nursing degrees.

 

[Dot57]

529 distributions

I have been contributing to our 11 grandkids 529 accounts since their births. The eldest is now in college but doesn’t seem to have a lot of motivation to work. Her mother (stepchild) reached out to me asking how to set up the distribution. I have been compelled to hold off until the money would be appreciated and told her I had decided to gift it to her as a graduation gift. Is this possible or do the fees have to be credited for active college expenses?
Does anyone have other ideas how they have handled 529 distributions?

 

[Dash man]

I have been contributing to our 11 grandkids 529 accounts since their births. The eldest is now in college but doesn’t seem to have a lot of motivation to work. Her mother (stepchild) reached out to me asking how to set up the distribution. I have been compelled to hold off until the money would be appreciated and told her I had decided to gift it to her as a graduation gift. Is this possible or do the fees have to be credited for active college expenses?

Does anyone have other ideas how they have handled 529 distributions?

You would have to pay a 10% penalty doing it that way. Can you collect copies of tuition receipts and other eligible expenses and pull the money out then, up to the amount of the receipt? You could also change the beneficiaries and use the funds for someone else who is more motivated.

 

[ivinsfan]

I have been contributing to our 11 grandkids 529 accounts since their births. The eldest is now in college but doesn’t seem to have a lot of motivation to work. Her mother (stepchild) reached out to me asking how to set up the distribution. I have been compelled to hold off until the money would be appreciated and told her I had decided to gift it to her as a graduation gift. Is this possible or do the fees have to be credited for active college expenses?
Does anyone have other ideas how they have handled 529 distributions?

You are right on topic here ,is it your granddaughters 529 or yours? Did you discuss your expectations as to what you expected from them before you gave them their "gift"?

 

[ncbill]

I'm glad to know I'm not the only one gifting my adult kids. Each situation is different, of course, and I doubt TMND conclusion applies to every kid. I figure the kids can use it now and the amounts we gift are small enough that I figure their inheritances can fund their retirements if necessary. I was even delighted when DS and his GF spent 5 weeks in Europe a year and a half ago - on the cheap and not all on our dime but definitely choosing that over IRA deposits. And while many people who haven't graduated from college do well, my experience has been that the ones I know do well for awhile but fall farther behind later and have definitely had a problem during this Covid thing. But my sampling is not large so maybe I'm wrong. People with college degrees seemed to have had more options. In fact the Covid thing has made a couple non-degreed people I know, both in their 50s - return to college, both for nursing degrees.

We transfer $15k annually to the one still in undergrad to pay for expenses not covered by their full (tuition & fees) scholarship.

This year we'll also buy out a lease for the other kid who wants to keep the vehicle...normally that wouldn't make sense but COVID has inflated the used vehicle market to the point that buying out the lease isn't much more expensive than buying used, if you can even find one comparable.

 

[Smallr]

First congrats on your success in building assets! We have three kids. We started saving for them in UTMA accounts when they were born Each ended up with ~$50-75k as they graduated from college. We paid for private HS and college (about $800k when all said an done). They all have good, high paying and secure employment. So, I am less inclined to dole out nominal gifts at this point. I feel like we have given them a huge head start along with excellent saving and financial habits.
You raise a great topic. I am sure as we age and are confident in our retirement security we will want to share our wealth. Look forward to reading the replies.

 

[youbet]

But, of course, some gift recipients will buck the trend and not be negatively impacted, so it's kind of a YMMV for any individual situation.

There ya go. And I don’t think we can even be sure there is a trend to buck.

 

[SecondCor521]

I thought the MND idea was that putting your kid in a higher class neighborhood than they could afford without assistance was the problem. So maybe a better idea is to wait for the house purchase (unassisted), and follow it with the gift to get out of the PMI zone.

It's been a while since I've read TMND, but from what I remember the problem is that regular gifting of moderate to large amounts put the kids in a frame of mind where they could rely on the gifting to get by and didn't have to work as hard or develop productive personal and financial habits.

I struggle with this as I don't want the adverse effects described by TMND, and I believe those could happen. On the other hand, I have more money than I need and nobody or nothing else I'd rather give it to. One strategy in general that I think works is to make the gifts unexpected and/or random. So they still benefit the offspring, but the offspring probably won't choose to rely on it.

Would anyone consider a whole life policy for "evening out" purposes? I like the idea of dividing the estate equally among heirs. I was thinking that making the child with lower educational costs the beneficiary would be a way to give tax free in a delayed way without exceeding the threshold for gift tax issues.

Whole life policies can be good for funding estate taxes and relatively immediate cash needs if there are any.

Do note that if the owner of the policy is the person who passes away, then the policy proceeds are included in the value of the estate, and thus can cause estate taxes due. The common way around that is an ILIT.

Personally I am not trying to even things out by having one kid get X while another kid gets Y. The reason for me is that I would be concerned that X might grow or decrease in value differently than Y, and that would leave me with two unpleasant choices: (a) constantly fiddling with the beneficiary designations and percentages so that it's equal, or (b) not doing so and having the values drift apart and result in an unintended unequal distribution.

I just do the simple thing and divide everything three ways. Roth IRA? Split three ways. House? Sold and proceeds split three ways. Checking account? Split three ways. If I had a whole life policy, it'd be in an ILIT and the proceeds would be split three ways.

I try not to let things get too far out of whack in the first place. If they did get out of whack for whatever reason, I'd try to rectify the situation ASAP while I am alive.

I have been contributing to our 11 grandkids 529 accounts since their births. The eldest is now in college but doesn’t seem to have a lot of motivation to work. Her mother (stepchild) reached out to me asking how to set up the distribution. I have been compelled to hold off until the money would be appreciated and told her I had decided to gift it to her as a graduation gift. Is this possible or do the fees have to be credited for active college expenses?
Does anyone have other ideas how they have handled 529 distributions?

You can withdraw from a 529 to pay for qualified higher education expenses. There is currently no time limit, so as long as they were not used for other education credits or deductions, you could withdraw from the 529 tax-free for your GD's college expenses even after she graduates.

There is even a new provision in the tax laws that allows for tax-free withdrawal to pay off college loans (up to $10K I believe), so if GD ends up with a student loan you could use that provision.

Any withdrawal from your 529 for your GC's college expenses would have to be reported on the FAFSA as non-taxed student income. If you're worried about that, just wait until the college student has two years or less left; due to the timing of things it won't affect their aid.

I have three in college now and am trying to end up with 529 balances of $0 the day the last one graduates. It's a constantly moving target, and I'll end up a bit wrong one way or the other.

Leftovers can generally be transferred to 529s for your other grandkids if you want, so you can roll it down from grandkid to grandkid as they go through.

You would have to pay a 10% penalty doing it that way. Can you collect copies of tuition receipts and other eligible expenses and pull the money out then, up to the amount of the receipt? You could also change the beneficiaries and use the funds for someone else who is more motivated.

Legally you can. Practically it's just a matter of working it out with the student, and maybe the student's parent to get a copy of the records, and then being organized enough to keep track of the paperwork.

 

[DrRoy]

We do not gift large sums but we have loaned them $ to buy cars and do not charge interest. One is paid back and the other is doing so.

 

[WhenIsItTime]

My kids are minors, so I haven’t been tested yet but do expect excess wealth to address. While I do give to charity, my first choice by far will be to keep majority in the family. I have one son who will handle that well and one who would spend it immediately. I’ve got a few years to out a scheme in place (pay for grades?) and see how they mature.

Books are for advice. The author doesn’t know your dependents or your wishes. Decide for yourself.

 

[Sunset]

... A few years ago we felt they needed a boost and paid off all their credit card debt. I fear that debt has returned. I set up a joint account at Fido to provide some cash flow for them, but I am not certain how far I should go.

........

I have seen a couple of times how people rack up a CC, someone pays it off to help them out, and fairly quickly the CC is maxed again. My sibling is like this, so next time she maxes her CC, I'll let use bankruptcy laws to deal with it.

I've also heard the anecdotal stories of people re-mortgaging their house to pay off the CC (saving the high interest) only to be back in maxed out CC land a couple of years later.

I knew a College professor, who told me he only used cash as he ran up his CC debt extremely high. It showed me, a person could be smart and still not control their spending impulses.

(IMHO) Giving $$ gifts to someone responsible, means they will probably be boringly responsible with it. Give $$ to some who cannot control their spending simply allows more spending.

 

[Koolau]

I have seen a couple of times how people rack up a CC, someone pays it off to help them out, and fairly quickly the CC is maxed again. My sibling is like this, so next time she maxes her CC, I'll let use bankruptcy laws to deal with it.

I've also heard the anecdotal stories of people re-mortgaging their house to pay off the CC (saving the high interest) only to be back in maxed out CC land a couple of years later.

I knew a College professor, who told me he only used cash as he ran up his CC debt extremely high. It showed me, a person could be smart and still not control their spending impulses.

(IMHO) Giving $$ gifts to someone responsible, means they will probably be boringly responsible with it. Give $$ to some who cannot control their spending simply allows more spending.

Our kids have made some mistakes. Mostly, they've bought properties and then moved "too soon" or tried "too hard" to become self employed. I'm much more receptive to helping them out in such situations than I would be if they had racked up CC debt.

I've mentioned my BFF who is half a mil in debt. He did one of those credit forgiveness "thingies" but went right back to CC financing as soon as he could. And, in his (only, in my opinion) defense, the CC companies gave him MORE credit. Sorry. End of rant. YMMV

 

[sengsational]

... Does anyone have other ideas how they have handled 529 distributions?

Back when I was active with paying out of a 529, the IRS was mum on whether it had to be claimed in the same year as it was spent, so mostly I did same year claiming. But nearer the end, I caught up some earlier year stuff that I mistakenly didn't claim. It is all documented, but complicated because of the scholarship offsets and stuff. It would probably take an hour of work for me to re-understand that spreadsheet.

...
You can withdraw from a 529 to pay for qualified higher education expenses. There is currently no time limit, so as long as they were not used for other education credits or deductions, you could withdraw from the 529 tax-free for your GD's college expenses even after she graduates.

There is even a new provision in the tax laws that allows for tax-free withdrawal to pay off college loans (up to $10K I believe), so if GD ends up with a student loan you could use that provision.
...

When did the $10K loan thing happen? This would be a nice thing for me that I didn't know about. Not a huge dent for someone with big loans, but one kid has a sizable leftover 529 balance and student loans to payoff. I just recall that in the original law at least, student loans didn't count.

 

[SecondCor521]

When did the $10K loan thing happen? This would be a nice thing for me that I didn't know about. Not a huge dent for someone with big loans, but one kid has a sizable leftover 529 balance and student loans to payoff. I just recall that in the original law at least, student loans didn't count.

You're right, it was not in the law before. It was an expansion as part of the SECURE Act passed around December 2019.

 

[rkser]

We saved in 529s for both the kids education, and are now saving for 2 grand kids 529s.

The 1st one went to an IVY for an undergrad, a yr Post Bach & then Med School. Her 529 was drawn down completely & then she took 30k in her last yr. which she repaid it herself. She is married to another MD, has 2 kids & money is not one of her worries.
Our son, 8yrs younger to her went to state school as it was similarly ranked as some private schools he could get into. He flunked a couple of courses, got a job for 2 years. Then came back home for a few months, completed his undergrad, got a better job & is now also doing MBA on weekends. He received free tuition based on his high school grades & used only part of his 529. His 529 is funding his MBA, but I suspect around $ 100k will still be left unused, thanks to the market.
We save in 529s for grand kids, to which we contribute regularly on their birthdays & Xmas.

We decided we will gift equally to both the kids, so every time we contribute to grandkid 529, we gift equal amount to our son. I manage his Roth & Brokerage for him at Vanguard.

Our investments have grown exponentially & we will die rich. We gift 30k to each of our 2 kids every year & then some to Charity.

Although I understand College may not prove helpful to some kids, I think it does to majority of kids. I keep reading how a undergrad earns higher than a high school graduate, a post graduate earns more than a undergraduate & so on. My professional school & DW's college was paid for by parents & we pay for our kids & also grand kids. It is a solid positive to not have school loans when you start your lives, and it is a very competitive world out there.

Some say generally it is the greatest investment you can make. Teach them to fish ...... & I would rather pay upfront rather than later in their lives.
From then on it depends on them how they use their gifts, their hard work & their luck

 

[athena53]

I say this as someone who sees it from the other side: We've become a society where we think a college education is the right answer...at least for "our" kids because we deem it a necessary condition to be successful and happy in life. I see plenty of kids who don't really know why they are there (except that it is expected of them) and who just might be better off with another path.

I saw this when I was in college and that was almost 50 years ago. So many with no passion for learning new things, no real career objectives and changing majors every year or so. Unfortunately, college degrees are required no for many jobs that I would argue just need an ability to learn and a good work ethic. DS is a claims adjuster. He's great at it because he's an excellent negotiator, he handles conflict well and he's good with people. His Math degree had nothing to do with any of that.

DS is my only child and I have an unusual problem. He and DDIL love modestly and responsibly on his salary. She home-schools the kids. They do have savings but it's not a lot ($30K or so last he mentioned it- I don't ask- and they're in their mid-30s). They've never asked for anything except $10K when they moved into a bigger house just before Baby #3 was born. I cheerfully gave it to them.

But- they're very generous and I wonder how much they give away and how much MORE they'd give away if I gave them $$. They belong to a large evangelical church and give to people in need that they know as well as to the church. That's what good Christians do- I gave 30% of my 2020 AGI to charity- but I want to make sure they have a decent retirement.

So, I'm funding the grandchildren's 529s. I figure they won't qualify for needs-based financial aid because of DS' income (about $60K/year now and the oldest is 6) and whatever savings they have. I do NOT want them taking out loans. If one gets a free ride to Harvard or chooses a trade that doesn't require a college degree I'll spread it to the others.

DS will get most of my estate when I leave this earth but it's mostly in a trust and one of my brothers (both accountants) will be a trustee, with DS as a trustee if he wants. That will provide a bit of a brake on any well-intentioned attempts at giving too much away. Good problem to have I guess.

 

[RockyMtn]

We have more than we could possibly spend unless I decide I need a jet, women and lots of drugs. Therefore we have been gifting to kids and grandkids for the last couple of years and will continue to do so.

Grandkids goes into 529 plans. Kids goes directly to them with the instructions to spend some, save some and donate some. It has worked out well so far. So much so that we may start doling out some larger chunks in the coming years.

We decided that we would start gifting money now while they really can use it as opposed to waiting till we are old and gone. I do reserve the right to pull back if I see the gifts being squandered.

 

[Sue J]

Our sons (36 and 34) and our DIL know they can expect cash for their birthdays. Above that we gift occasionally when we see a need. The problem with that is that the married son has had more occasions than the single son.

In March 2020, the same week that our son was laid off because of the pandemic, they had a slow leak in a car tire. It was a nail in the side wall and couldn't be repaired. The tires were the originals, 40,000 miles or so and it's a 4 wheel drive so they had to replace all 4 tires. Our 2 year old grandson rides in that car and I didn't want them having to put off new tires so we asked if we could pay for them. They were very appreciative! My heart told me to do that!

They bought a house in 2018 and it came with an old, small refrigerator. We got a new refrigerator that year when we remodeled our kitchen and I just enjoy having a new one. We told them last summer that when they got around to getting a new refrigerator, we would contribute to it. They weren't ready last summer but they did get one in Nov. It's a nice French Door and the price was about half the normal price because of a nice scratch on the side. They are very good bargain hunters!

We also contribute to our grandson's 529, on his birthday but also other times, just cuz.

Our other son, the single one, hasn't needed anything. I'm thinking if he ever buys a house or condo we'd give him a chunk of money.

 

[flyingaway]

Based on various studies that have been done on this (most notably discussed at length in The Millionaire Next Door), this is generally not a good idea. Often, adult children who receive large, regular cash gifts from their parents end up building less wealth and less financial security than adult kids who don't receive such gifts. This is because they begin to view the money as "theirs", as an entitlement, which tends to diminish their incentive to save and invest. So, instead of being helped by the cash gifts, they are actually harmed by them over time, which is the opposite of what the parents were hoping for.

I suggest you read the chapter titled "Economic Outpatient Care" from The Millionaire Next Door before embarking on a annual cash gifting plan.

I see this kind of arguments many times and I don't understand why giving money to children so that they don't have to work or work hard is a problem, if the parents can afford.

Especially on this forum, people talk about retire early, would it be the best if a person retires at the birth, i.e., does not have to work for any day, if the parents have money to support this person to do anything he/she wants?

 

[ivinsfan]

I see this kind of arguments many times and I don't understand why giving money to children so that they don't have to work or work hard is a problem, if the parents can afford.

Especially on this forum, people talk about retire early, would it be the best if a person retires at the birth, i.e., does not have to work for any day, if the parents have money to support this person to do anything he/she wants?

Because unless you are Elon or Jeff B, you might not have enough to support your kids for life in the style you have made them accustomed to.

And there is really no downside to someone mentally and physically capable learning how to support themselves.