Gifting vs Inheritance

[Midpack]

We don’t have kids. Our estate will be left to one BIL and our nieces and nephews. Who knows what our estate will amount to when we’re gone in 20ish years, but today the amounts would be very substantial. The odds of us running out are remote.

The BIL has a greater NW than we do, so he doesn’t need the money - but he’s our successor trustee/executor. The nieces and nephews are financially all over the map, one who’s already amassed quite a bit in his mid 30’s, one without a penny to her name in her mid 50’s, all the others are doing OK but probably moving toward FI very slowly if at all.

I think we should gift the maximum tax free amount each year ($19K?) to some nieces and nephews now while they can really use the money, not just a large lump sum in 20ish years. [Please leave why “some” out of the this discussion] I don't care to know what they do with it. There won’t be any added tax consequences for us or them. There is no real danger we’ll come up short financially by gifting now. And we’d stop if our picture changes radically in the years ahead.

DW is adamantly opposed. She won’t say exactly why, but I think she’s afraid they’ll take it for granted and/or it will impede their financial discipline - and neither of us had any financial help from our parents as adults. And she’s convinced most of them talk to each other regularly, so if we don’t gift equally among them, it could cause friction - that’s not completely lost on me. And I think DW is subconsciously afraid we could run out ourselves in the many years ahead.

Odds are they’re all going to receive substantial lump sums when we pass, with our without gifting.

Surely others here have grappled with warm hand vs cold hand. What made you choose to gift while alive or not?

 

[Alan]

We have been gifting as you suggest for some years now. No questions asked as to where the money goes, and no promise that it will continue, just that it is excess that we will never need so they may as well have it now than, hopefully, decades in the future as a huge lump sum.

 

[RetireBy90]

I'm 110% with you, $19K per person so you and DW could do total of $76K to a couple. DW may be less resistant if you said it was for a purpose like down payment on house or if they needed a car or pay off college debt or other purpose. Or you could do a lesser amount that DW may not be as opposed to.
I think the idea is great, you get to see the benefit while your around. MOM did this each year to her kids and it was appreciated.
I'm not a big believer in equalizing and our estate won't go like that but I understand it may cause some friction.
We aren't in the same situation, if there was an heir that had a need we would do such but at this point none are wanting/needing.
Good Luck in a consensus with DW. First step in your idea or plan.

 

[Koolau]

We have always gifted for specific needs (student loans, house down payment, etc.). But we do like gifting rather than "leaving" money when we are gone. YMMV

 

[marko]

We have a similar dilemma, however over the past 30 years we've provided heavy financial support to one branch of DWs family, with less than positive results. All it did was create three lazy dependents.

As the "children" are nearing 30, we have no interest at this point of continuing and have turned off the tap. [Check out comments on my thread about helping another nephew with his student loan]

They'll get our money when we die, and good luck to 'em!

 

[DrRoy]

I think it would be fine to gift, but of course your DW must be on board. I think that the amounts should to be equal to not cause problems. We are not gifting to our sons so far in general, except to help them with loans for cars at no interest. This year my DW received an inheritance from her DF. She is going to give perhaps $5K each to the boys at Christmas.

 

[marko]

OP, just a nit: you say "I think we should gift the maximum tax free amount".

I trust that you know that you can gift any amount tax free; you just have to report the overage as it goes toward your lifetime total, which few people ever max out on.

 

[Delawaredave5]

I would let BIL lead first in any wealth transfer / gifting. Not your kids.

 

[Ronstar]

We have no kids - we are leaving our estate to our niece and nephew. While they really don't need the money now, their children are approaching college age. I could see doing a gifting program toward their college expenses, and then pass the rest to niece and nephew when we pass.

FA has briefly brought up gifting as a way to start funneling $ to our heirs now.

So far, DW has been against gifting. Her main reason is that she wants to make sure that she has enough $ to last her until the end of life. And who knows how much long term care will cost.

So we have not done any gifting yet, but may if she changes her mind.

 

[audreyh1]

We’ve been “gifting with a warm hand” for a long time now. Most years it’s been within the annual gift tax exclusion. But twice now we’ve gifted a much larger amount sufficient to require filing the 709 forms for each of us since we declare the gifts to be from both of us. This form tracks the remaining estate tax exemption for each of us. I really have no idea what the IRS does with these forms. You have to fill them out yourself and mail them in. I kind of day dream the papers get piled up in a back office somewhere and never looked at again.

No conflicts about the gifting. It generally comes out of unspent funds - that is funds withdrawn from investments but not spent in a given year.

 

[Surewhitey]

We have limited our gifting to the 529 & taking the family on vacation. We did do a "all family" trip to the mountains earlier this week and it went well too. We picked up the cabin and food for ~12... All of these are ~$5k ea.

Big gifts are not likely to come as we're conservative for our future needs unless DD or the grands are truly in need.

Down market times will likely change any of this...

 

[pjigar]

I like gifting for tax reasons.

 

[audreyh1]

I like gifting for tax reasons.

Definitely!

 

[Still Learning]

We have a much simpler situation with a single daughter/son in-law just celebrating their first anniversary. They are 33/38 and already use a budget, invest and now have an income projection spreadsheet to estimated retirement date. Two weeks ago they impressed us greatly walking away from building a 2,000 sf house for $1M construction cost alone in high tax area on already paid off land and decided to purchase a 35 year old 2,600 sf house on 6 acres about an hour north of us. So they decided to live within their means which was very satisfying to us. Last week they sold their original land for 5.5X profit over 5 years and elected to put most as additional down payment and the remainder into investments.

So the story above makes our gifting without strings very easy. Already put aside money for a house warming gift.

 

[Dalton]

Maybe you could convince the wife to try gifting some smaller (than max annual gift limit, e.g. several thousand $) sum for a couple/few years, and then see how it feels, see if you get the response you may be looking for, give you some time to casually-in-conversation question them on how they are using the money you are giving them, etc. With the gift/card, you might offer your intention on the purpose of the gift (but it's best to not weight yourself with expectation about how they should spend it, for your own sanity).

This trial run could possibly bring the missus around to the idea of giving more, or maybe reveal character flaws in individuals that change your plans for your will. How will you react if, after a couple years of small gifts, you start feeling like the recipients have developed an entitlement mentality about the gifts?

 

[CaliKid]

Gifting can be HUGE for the recipient. Of course, both you and your significant other have to be on the same wavelength though. You could give it a go this year and make it clear it may be a one time thing but at least this year your financial planner suggested you make the gifts. Blame them so if you decide to turn off the spicket next year you can blame the financial planner (or attorney or cpa) then!

 

[Exchme]

We have gifted up to no more than the max of the exemption limit to our kids for the last several years. We sometimes gift less so they don’t bake it into their budget. So you can gift this year and see how it goes and then do it again, or not, in the future. The first year we did cash before we realized what a pain that was for us, now we gift appreciated stock directly to their brokerage. You could require that they set up a brokerage account somewhere so there would be a greater chance that they save some if it.

 

[Jerry1]

I would go with a smaller amount and gift equally. For anyone already doing well a small amount (say $5K) won’t do anything but for those less financially sound, $5K would be a big deal. That kind of satisfies one of your goals in that the benefit is unequal instead of the amount. Not sure if it matters to you but a smaller amount doesn’t highlight how financially well off you are.

 

[MarieIG]

We have children so I don't think it's exactly the same.

Also, we agree on what to gift. If either DH or I are not on board with the gift / amount - we don't do it.

Furthermore, we want to make sure our long term care, either at home (which we would prefer) or at a high-end facility is completely covered, and want to be able to afford innovations in medical treatment which we might need, but which may not be covered. Even if the market has a 60 percent dip right before we want to withdraw a significant sum.

Moreover, we gift to charities.

In addition I, like your wife, don't want anyone standing there expectantly with their hands out, and I prefer that gifts be intermittent and either unexpected or matched with an occasion or need. I'm not putting anyone on the payroll. So, we do gift, but not in the manner that you are espousing.

 

[Golden sunsets]

To date we have given large amounts of $$ to our children for specific purposes, e.g. wedding gifts, house down-payments, but other than GK's 529's annually, there has been no regularity. We are now at the point that we could and maybe should do so annually. I'm reluctant though, as I feel they might build it into their spending. Both of our kids earn good money and are building wealth so "need" is not an issue. Suffice it to say, it's an ongoing discussion between DH and I.

 

[HarveyS]

I like gifting for tax reasons.

Could you please elaborate? What are the tax reasons for gifting?

 

[Gumby]

Mid sixties and no children here, and our nieces and nephews are already in their thirties and forties, so gifts won't really make a difference in their lives. I'm inclined to leave money as an inheritance to the next generation - the great nieces and nephews, who are young children right now. Although what probably will happen is that the young wife will get everything and then she will decide.

 

[audreyh1]

Could you please elaborate? What are the tax reasons for gifting?

To reduce the estate overall. Also to reduce the taxable investments which generate taxable income.

With charitable gifting you can also seriously reduce taxes owed for the current year. Which also reduces the estimated taxes you have to pay the following year.

 

[Stormy Kromer]

I like your idea of gifting now. However, keeping DW happy would be my first priority.

 

[marko]

To reduce the estate overall. Also to reduce the taxable investments which generate taxable income.

But get even more immediate benefit by gifting to a qualified charity instead of relatives.

I've given up trying to reduce the estate or taxable income. It's just running away from me. But I grew up in a family where "gift" was a four letter word.