Gifting with a warm hand

[Gumby]

.....
To whom much is given much will be required. (I'm hearing my minister father here, even though I'm not religious per se). And this is just a rule for me, not for all yall, just to be clear. It's kind of Hemingway personal code, even if it is Scripture.

Words that have guided my life as well.

 

[Joylush]

Yes to all the questions in the second paragraph.

I have additional reasons for warm hand gifting:

1. I can see the impact - good or bad I would rather know. Good means I can enjoy seeing the benefit; bad may mean I need to change future gifting.

2. I might have an estate tax problem. Gifting earlier is more impactful.

3. I can provide advice (if asked) about how to handle the gift. Harder to do when I'm dead.

I also do charitable giving for similar reasons. I may also execute a partial disclaimer for similar reasons.

I would probably take the $500K at 50 since I was divorced at 37.

FWIW, there's a BH thread with the same title I have open in a different window:

https://www.bogleheads.org/forum/viewtopic.php?p=7459727

Maybe there's some good thoughts there.

Can you expand on what you mean by item #2 ?

 

[Koolau]

To whom much is given much will be required. (I'm hearing my minister father here, even though I'm not religious per se). And this is just a rule for me, not for all yall, just to be clear. It's kind of Hemingway personal code, even if it is Scripture.

Words that have guided my life as well.

Likewise. It's more blessed to give than to receive is the one I keep coming back to. YMMV

 

[Dash man]

Can you expand on what you mean by item #2 ?

I’m in a similar situation, so I can give you my view. Currently our net worth is no where near the Federal Estate Tax exemption, but things will change in 2026 under current law. We are hovering just under the expected Estate Tax exemption projected for 2026 and beyond unless the law is changed. So by gifting to family and charity, we are preventing our kids from paying the Federal 40% Estate tax on assets over the exemption. Unfortunately, we can’t avoid the Pennsylvania Inheritance tax.

 

[Koolau]

I’m in a similar situation, so I can give you my view. Currently our net worth is no where near the Federal Estate Tax exemption, but things will change in 2026 under current law. We are hovering just under the expected Estate Tax exemption projected for 2026 and beyond unless the law is changed. So by gifting to family and charity, we are preventing our kids from paying the Federal 40% Estate tax on assets over the exemption. Unfortunately, we can’t avoid the Pennsylvania Inheritance tax.

Heh, heh, you could move!

We have saved thousands in taxes by moving - and we haven't even died yet.

 

[Joylush]

I’m in a similar situation, so I can give you my view. Currently our net worth is no where near the Federal Estate Tax exemption, but things will change in 2026 under current law. We are hovering just under the expected Estate Tax exemption projected for 2026 and beyond unless the law is changed. So by gifting to family and charity, we are preventing our kids from paying the Federal 40% Estate tax on assets over the exemption. Unfortunately, we can’t avoid the Pennsylvania Inheritance tax.

That’s exactly what I was thinking. I’m currently in the process of gifting two rental properties (one to each of my two children). I keep hearing, no don’t do that, they will lose the stepped up basis. But in one case the person needs a house now. The other will continue to use it as a rental property.

My thought is even if they ever sell them and have to pay the maximum 25% depreciation recapture rate and current 15% capital gains tax rate it’s still less than the 40% estate tax they would have to pay on the full value of the property if they inherited them instead. And they would be removed from my estate now so any future gains or profits they earn would be not part of my estate.

I expect my estate will be subject to federal estate taxes so it seemed to make sense to gift now even though the stepped up basis will be lost. Just hope I’m not missing something.

 

[Dash man]

Heh, heh, you could move!

We have saved thousands in taxes by moving - and we haven't even died yet.

Yeah, that’s not going to happen. We love being close to our boys and the grandkids. Some things are priceless!

 

[Dash man]

That’s exactly what I was thinking. I’m currently in the process of gifting two rental properties (one to each of my two children). I keep hearing, no don’t do that, they will lose the stepped up basis. But in one case the person needs a house now. The other will continue to use it as a rental property.



My thought is even if they ever sell them and have to pay the maximum 25% depreciation recapture rate and current 15% capital gains tax rate it’s still less than the 40% estate tax they would have to pay on the full value of the property if they inherited them instead. And they would be removed from my estate now so any future gains or profits they earn would be not part of my estate.



I expect my estate will be subject to federal estate taxes so it seemed to make sense to gift now even though the stepped up basis will be lost. Just hope I’m not missing something.

We considered gifting them the townhomes they’re currently living in, but since we’re currently under the gift tax exemption we decided not to. One was previously a rental for 20 years, and the son living in it is not financially savvy. We’re afraid if we left him having to pay the depreciation recapture he’d somehow lose the house to the IRS.

 

[livingalmostlarge]

That’s exactly what I was thinking. I’m currently in the process of gifting two rental properties (one to each of my two children). I keep hearing, no don’t do that, they will lose the stepped up basis. But in one case the person needs a house now. The other will continue to use it as a rental property.

My thought is even if they ever sell them and have to pay the maximum 25% depreciation recapture rate and current 15% capital gains tax rate it’s still less than the 40% estate tax they would have to pay on the full value of the property if they inherited them instead. And they would be removed from my estate now so any future gains or profits they earn would be not part of my estate.

I expect my estate will be subject to federal estate taxes so it seemed to make sense to gift now even though the stepped up basis will be lost. Just hope I’m not missing something.

The stepped up basis for rentals is probably better than stepped up on stocks but either way it's a win right? Free gift.

 

[Koolau]

Yeah, that’s not going to happen. We love being close to our boys and the grandkids. Some things are priceless!

Yeah, I agree. But sometimes it just seems, somehow "wrong" that taxes can be so different, state to state. What services am I NOT getting in my new state that I used to get in my old state? Ahhhh, yes. Snow removal. That's all I can think of.

 

[Jeffman52]

After that incident, I decided two things: 1) that I could never loan money to my family, only give it to them; and 2) that it was too psychologically burdensome to know or care what they did with the money after I gave it to them. I have stuck by that decision for almost 40 years. I have given family members money. But no matter what they tell me to support the ask, I never, ever later ask what they actually spent it on. It's just easier that way.

spot on. My wife and I never loan money to anyone for any reason. If we want to step in, in that manner, we just give them money with no strings attached. Its a gift and I always tell them, "hey this is a gift from us to you. I hope it helps".


Recently I was on the phone with my older brother. During the conversation he said something about how long it took him to go to work and after a few questions found out his truck had broken down and he was walking to work (about 8 miles) until he saved enough to get it fixed. He has never asked me for money and I have never before given him money. But in that moment I said "Hey you didn't ask, and feel free to accept or decline, but can I pay to have your truck fixed?, It will be a gift from us to you." He accepted and I sent him a couple thousand dollars using Western Union (the fees are crazy but it was the only way to get it there quickly and he does not use any kind of cash app.) I knew that was more than he would need but figured if he was having to save to fix his truck that he could use the additional. I only followed up to ensure he got the money. A week later he told me his truck was running and he was back to driving to work.


One of my other (half) brothers has asked me for money a number of times. He spent some time in jail (from 17 - 25) and lives a pretty hard life but brings things on himself from just poor decisions, over and over. The last time he phoned for money I said "I am sending you "x" amount. I know its more than you asked for and I hope it helps. But I want you to know. You can never come to me for this kind of help again". I said that because it was never going to end. He would always be coming to me for a bailout. That was a few years ago and he had yet to ask again.

 

[Time2]

We started gifting when my daughter, 3 yrs after graduating college decided she wanted to be a dentist, we gifted tuition through the premed classes, a Masters* and then the dental school. Wife and I each gifted ~$15k to her and we each gifted ~$15k to her husband every year, that way they got they tax deduction and credit. So for her the money available early let her start a dental career without student debt.

From a practical and objective standpoint, personally, I don't feel like paying for education that will result in tangible earning power as a gift, it is more like an investment in the future that will pay off in terms of a better quality of life and hopefully and possibly pay forward to the next generation. It is investing money to make money. You are obviously blessed to have an intellectually ambitious and hard-working daughter who has focus and drive. It is difficult to put a value on that but congratulations, just the same.

I used the term gift in IRS terms. It certainly was an investment, she has earned more than the "investment" in the first 18 months of practice. Thanks for the congratulations, she is certainly a go getter. I have said she has some "bad ass sticktoitness", keeping her eye on the prize for 6 years.

 

[Joylush]

We considered gifting them the townhomes they’re currently living in, but since we’re currently under the gift tax exemption we decided not to. One was previously a rental for 20 years, and the son living in it is not financially savvy. We’re afraid if we left him having to pay the depreciation recapture he’d somehow lose the house to the IRS.

Oh that is my fear as well. I have night and day twins. One is exceptionally financially responsible and practical while her brother seems to be from a different planet.

(Both received much financial education and advice. One just decided to follow it, the other decided to be completely reckless.)
I have gifted in the past to assess their management skills. I very much worry about enabling and over protecting the irresponsible one from his choices. One has 100% proven they can manage money, the other has 100% proven they cannot.

I was going to rent the house to my son but do not want that relationship with him so I’m giving it to him. If he manages to screw up a free house by failing once again to learn from his financial mistakes I will know I have done all I can possibly do. He has the knowledge but his behavior and consequences will be his choice. If he can’t be responsible with his own money he’s not going to be responsible with mine. Sometimes not giving is the better gift.

 

[Dash man]

Oh that is my fear as well. I have night and day twins. One is exceptionally financially responsible and practical while her brother seems to be from a different planet.



(Both received much financial education and advice. One just decided to follow it, the other decided to be completely reckless.)

I have gifted in the past to assess their management skills. I very much worry about enabling and over protecting the irresponsible one from his choices. One has 100% proven they can manage money, the other has 100% proven they cannot.



I was going to rent the house to my son but do not want that relationship with him so I’m giving it to him. If he manages to screw up a free house by failing once again to learn from his financial mistakes I will know I have done all I can possibly do. He has the knowledge but his behavior and consequences will be his choice. If he can’t be responsible with his own money he’s not going to be responsible with mine. Sometimes not giving is the better gift.

We don’t want a landlord/tenant relationship with our kids either, so we just let them live in the homes as if it’s theirs, with no rent. They pay utilities. We pay taxes and any major expenses such as a new a/c or whatever. Our benefit is the grandkids being nearby.

 

[tmitchell]

I have been contemplating this topic quite a bit as I just updated my will. We have no kids, and I have no nieces or nephews either, so there's really no immediate family (other than cousins I haven't seen in years) to give to. If we ever tie the knot I guess some could go to my partner's nieces/nephews but they don't really seem to be in need at this point.

I recently paid a $4k vet bill for a broke friend, and I'm thinking about gifting $25k to a dear friend's son who's going to get married as help for a down payment on a home.

Otherwise I'm at a bit of a loss. Has anyone here found effective ways of directly helping the poor? I feel large NGO's spend the bulk on the organization's maintenance. I have heard of people paying off school lunch debts, etc. It just seems like that directly helping the disadvantaged would have a meaningful impact, but I'm not sure where to start.

 

[Joylush]

We don’t want a landlord/tenant relationship with our kids either, so we just let them live in the homes as if it’s theirs, with no rent. They pay utilities. We pay taxes and any major expenses such as a new a/c or whatever. Our benefit is the grandkids being nearby.

I still felt that was too much to monitor. If you are supporting them via free rent then you have to report the value of that gift of rent which exceeds the annual exclusion amount. I didn’t want that hassle. You have a spouse and can each gift $17,000 in benefits so $34,000 per child before having to file a gift tax form. I can only do $17,000. I would have done it your way if I was in your position too.

My son also has destructive animals he won’t part with so me owning it and worrying about it being destroyed would not be good for my mental state. If it’s his, he can do what he wants with it and maybe he will value it more that way. Your adult children sound more responsible than the one of mine I’m concerned with.

 

[Dash man]

I still felt that was too much to monitor. If you are supporting them via free rent then you have to report the value of that gift of rent which exceeds the annual exclusion amount. I didn’t want that hassle. You have a spouse and can each gift $17,000 in benefits so $34,000 per child before having to file a gift tax form. I can only do $17,000. I would have done it your way if I was in your position too.



My son also has destructive animals he won’t part with so me owning it and worrying about it being destroyed would not be good for my mental state. If it’s his, he can do what he wants with it and maybe he will value it more that way. Your adult children sound more responsible than the one of mine I’m concerned with.

Heh heh! One is responsible. The other has matured some when twins came into his life. He has difficulty getting out of a comfort zone with jobs. He loves to cook, and he always finds cooking jobs. Never with insurance or enough pay for financial stability. He doesn’t spend much, but doesn’t earn enough to support his family and his wife left for greener pastures, though they share the kids. So this home is likely his forever home. He’ll inherit enough to care for it when he’s older. We’re putting money away for the grandkids college and some starter investments.

 

[Dash man]

I have been contemplating this topic quite a bit as I just updated my will. We have no kids, and I have no nieces or nephews either, so there's really no immediate family (other than cousins I haven't seen in years) to give to. If we ever tie the knot I guess some could go to my partner's nieces/nephews but they don't really seem to be in need at this point.

I recently paid a $4k vet bill for a broke friend, and I'm thinking about gifting $25k to a dear friend's son who's going to get married as help for a down payment on a home.

Otherwise I'm at a bit of a loss. Has anyone here found effective ways of directly helping the poor? I feel large NGO's spend the bulk on the organization's maintenance. I have heard of people paying off school lunch debts, etc. It just seems like that directly helping the disadvantaged would have a meaningful impact, but I'm not sure where to start.

1. We give directly to a homeless shelter near us and occasionally provide a meal for the folks there.
2. We also give to our local food bank and to a charity that helps moms and moms to be provide for their children.
3. We provide a scholarship to some single parents for child care expenses so they can work.
4. We provided a dollar for dollar match to a local school sponsoring a walk for childhood cancer research in honor of a classmate of theirs battling her third type of cancer. They raised $7,000, so we matched it. The principal was expecting about $1,500 to be raised. Matching gifts really works.

 

[SecondCor521]

Can you expand on what you mean by item #2 ?

Sure.

You probably know: the federal estate tax is (currently) 40% of however much your taxable estate exceeds the basic exclusion amount (BEA). The BEA is currently $12.92M per person; it'll be cut in half in 2026. It's assessed within 9 months after death.

A person's taxable estate is an IRS term, but it's roughly whatever your net worth is minus however much you transfer to a surviving spouse and/or charity.

"I might have an estate tax problem" - I'm 54 and while I might get hit by a bus tomorrow, I'll likely live at least into my 80's. My investments might tank, and Congress might change the law, but odds are that if I don't take actions to prevent it, my taxable estate will exceed the BEA when I die and that 40% tax on the excess will be due.

"Gifting earlier is more impactful" - I'm pretty sure this was what you wanted me to expand on. I was mainly referring to the idea that for purposes of the BEA, the gift value is as of the day of the transfer, but a gift gets the gift itself *plus all future appreciation* out of your estate. So if I gift $10K in stock to my kid now that would be worth $50K the day before I die, then I've only used up $10K of the exemption rather than $50K. (Not a tax thing, but the $10K now might be more impactful on my kid than $50K later.)

The BEA is adjusted annually for inflation, but my investments historically have grown much faster than inflation - usually approximately 10% vs. 3%. Getting that 7% excess growth out of my estate three decades earlier compounds into quite a bit of impact.

Said the opposite way, my Dad has a similar problem. We've started an annual gifting program for him (he's 87 with dementia and I have full POA and full support from him) but because we started too late the compounding could outpace the gifting. Not my Dad's numbers, but say someone with $8M today growing at 9%, that's $720K growth in one year, which far exceeds $17K times three kids, and even $17K times three kids plus nine grandkids.

There is also of course the notion of giving up to the $17K per year per person annually, which doesn't even eat into the BEA. There are other tricks and strategies as well, of course.

One does lose the step up, and I haven't done the math on it but just based on gut feel, avoiding that 40% estate tax seems more valuable. With some of my kids, they might not even sell the investments I gave them for a long time, so any loss of step up and/or capital gain is still deferred for a while.

My father and I both live in Idaho, which has no state estate or inheritance taxes.

 

[Car-Guy]

I think many people do inherit 6 figure amounts. I always wondered what they do with it.

I also know that some inherit 7 figure amounts.

Yep, I'm one. Hope to get another one someday.

 

[ychuck46]

Somewhat

We have only one child and SIL so we do a decent amount for them, but no huge amount. We are very comfortable but who knows what the future might bring. So while we enjoy giving them decent sized cash gifts and the like, no huge amounts will be likely until the last of us passes. Then they get it all.

 

[dknighd]

I like giving with a warm hand. But I also do not want to run out of money. A tricky balance.

 

[dknighd]

Yep, I'm one. Hope to get another one someday.

Maybe then you could buy another hobby car

 

[pacergal]

To whom much is given much will be required. (I'm hearing my minister father here, even though I'm not religious per se). And this is just a rule for me, not for all yall, just to be clear. It's kind of Hemingway personal code, even if it is Scripture.

Agree. My folks instilled a mantra regarding money earned: Give to God (or charity of choice), Pay yourself (save), live on the rest.

I like giving with a warm hand. But I also do not want to run out of money. A tricky balance.

Agree. We don't have millions to live off of or give. We have enough saved to hopefully pay for any medical and LTC if needed, or emergency life situations (home maintenance, etc). Gifts to our kids comes from what we save via our pension and SS checks.

 

[tmitchell]

1. We give directly to a homeless shelter near us and occasionally provide a meal for the folks there.
2. We also give to our local food bank and to a charity that helps moms and moms to be provide for their children.
3. We provide a scholarship to some single parents for child care expenses so they can work.
4. We provided a dollar for dollar match to a local school sponsoring a walk for childhood cancer research in honor of a classmate of theirs battling her third type of cancer. They raised $7,000, so we matched it. The principal was expecting about $1,500 to be raised. Matching gifts really works.

Thanks. How did you find the pathway for #3?