How to gift to Children ??

[rkser]

How to gift to adult children ages 41 & 33 ?? Both are gainfully employed, as are their spouses.

We are 70 & 65, come from modest backgrounds, have been frugal all our lives, saved & invested & are just lucky & fortunate to have savings of around $10 million.

Being reasonably sure that we cannot spend our savings in our lifetimes, we have a aggressive index ETF AA of 86/15 for a larger inheritance when we pass.

We gift transfer ETF shares from our taxable accounts, to each around $38k ($19k each) every year & we contribute to the 529s for our grandchildren. When our children want cash, they sell ETFs & pay the Cap Gain Taxes 15%.

We spent all in around $175k last year, being the highest spend so far.
We have a combined SS of around $65k & received around $120k in dividends last year.

Now the question in my mind - should we - 1) Transfer ETF shares of $250k every few years to each child & complete Form 708 with our taxes
OR
2) Start including their spouses too & transfer ETFs excluded from reporting worth $38k /yr from our Taxable accounts.

Sorry for a long post including the back ground for the question.

Thank you in advance for your thoughts

 

[rkser]

I also hope I do not want to ruin them by gifting to them, although they are well grounded so far, but only future will tell.

We would like to gift them now when they could use the money on their growing families, giving with warm vs cold hands.

They will also have a reasonable inheritance when we pass, but that may come in another 15 to 20 yrs.
The children will be in their 50s - 60s and they may not need the money as much at that stage, although with the Step Up (Taxable Accounts) will not have to pay taxes.

Lot of questions in our minds, I know it is a first world problem.

 

[timbervest]

We are dealing with this now with a nice NW in our 70s and two children 38 and 34. We have been annually gifting them up to the gift limit (not spouses). Both are well grounded and self supporting. I think arranging for some early transfer of assets in the next 5-10 years when they are in their mid - late 40s will work. As Warren Buffett says "enough to do anything but not enough to do nothing". I plan to live to 100 anyways so what fun it is to inherit a big chunk of money when you are 70? This way they can plan toward FIRE and enjoy life.

 

[Kings over Queens]

Now the question in my mind - should we - 1) Transfer ETF shares of $250k every few years to each child & complete Form 708 with our taxes
OR
2) Start including their spouses too & transfer ETFs excluded from reporting worth $38k /yr from our Taxable accounts.

Yes?

It's impossible for me to say without knowing what you need and/or want to accomplish. Both suggestions that you asked about work with option 1 being more aggressive. You might consider selling the funds so you pay the tax and gift them the cash instead? I don't know.

I guess the real question is how much do the adult kids need or want to do with your gifts? They may prefer to wait until the inevitable and get take the step up in basis. Perhaps a conversation with them to get their thoughts makes sense for all interested parties. It's not that you need their permission to be generous, but they may have some ideas that make sense.

 

[CalBird]

Unless the kids are in financial need, I would spend the money on some expensive experience with the kids and grandkids. Do some big family get-together in exclusive places. It would benefit both yourself and the kids. You may still leave them sizable inheritance at the end.

 

[rkser]

The usual feed back from the kids is -
Spend on your selves mom/dad or do what is easier for you or which ever way you want.
We pay for a yearly weekend vacation when the 2 kids with their spouses & their jobs with four grand children could agree on, our youngest grand kid is just 2 months old so Mexico was cancelled last year.
Essentially no answer or feed back from kids, it is like when you come to a fork take it.They are in their own world.

So I & DW are scratching our heads, it is a self managed portfolio.
I do have Plan Vision I can check with.

 

[SnowballCamper]

Unless the kids are in financial need, I would spend the money on some expensive experience with the kids and grandkids. Do some big family get-together in exclusive places. It would benefit both yourself and the kids. You may still leave them sizable inheritance at the end.

I like this idea. Making memories.

 

[Bruno]

FWIW I have 3 kids and i just made me 3 new brokerage accounts at Fido with TOD. I have also moved some funds into those accounts. I will just eat the earnings but when i pass those shares will also get the step up in basis. They will also split my dads inherited ira.

 

[MarieIG]

If I wanted to do that, I would probably tax loss harvest and give them cash, up to the exclusion to the child and spouse. If I didn't have losses then I would gift ETFs. I would not gift on a schedule as I would not want them to get used to getting the gifts and rely upon them and would not give bulk gifts of 250k.

You can also pay tuition bills directly to the institution without having to consider gift tax. I would also considering gifting things like a summer camp for the DGC, paying for activities, taking them on vacation, i.e. experiences that they will remember.

 

[TheWizard]

I actually have a secure message into Vanguard to find the best way to do something similar with my adult son.

I had been contributing the max to his Roth IRA each year, but his income is getting higher so that's not the best idea anymore. My plan is to transfer/contribute to his taxable brokerage account instead, going forward.

I'll see what Vanguard's answer is soon but would be interested if anyone else has done this.
I think I would prefer a printed form with his name and acct # on it, but not clear if they do that nowadays...

 

[Koolau]

Giving with a warm hands is an excellent idea. We've been doing that for several years. But when we pass, the bulk of our estate will go to our charities (though some to the kids/grands).

In the mean time, we just send a check, every once in a while and let the kids decide what to do OR we help them meet a current need (house down-payment, etc.).


No one way to do it. Whatever w*rks for you and your family.

We don't have OP's stash, though ours is significant. We believe that suddenly dumping a "million" on a 35 to 40 year old (in our case now) when we pass may not be the best thing for THEM! We know our kids!!

Certainly a YMMV situation. All the best to OP.

 

[DrRoy]

Yes, include the spouses to transfer more.

 

[Surewhitey]

We did the experience thing last year for the whole family. Cabin in N GA and went well.

Gave DD & family an anniversary gift (printed Swiss 'tickets') to join us in Switzerland and Italy in June. Their first time in Europe and should be memorable. We'll probably be giving them time alone and take the kiddos on occasion.

 

[rkser]

Our daughter is 41, an MD & is married to an MD, they are doing well.

Our son is 33, has a MBA & works with a University, our daughter in law has a PhD & works at the same university. They are also doing fair to well, I think they bring in about $225k/yr combined.

Wizard, we transfer shares on phone 800 number, of VTI & VXUS at Fidelity to their brokerage account #s in Fidelity

 

[Exit 2024]

With $10M I would explore to set up a Dynasty/Perpetual trust to benefit future generations if kids are good on their own and do not really need that large of inheritance. They still will receive distributions/ trust earnings as beneficiaries, but not the base amount.

 

[Koolau]

Our daughter is 41, an MD & is married to an MD, they are doing well.

Our son is 33, has a MBA & works with a University, our daughter in law has a PhD & works at the same university. They are also doing fair to well, I think they bring in about $225k/yr combined.

We transfer shares of VTI & VXUS at Fidelity to their brokerage account #s in Fidelity

How are "your" Doctors doing on school loans? I had a PCP who was about 50. He was still paying loans!! I'm guessing that's not atypical here in the Islands. School is expensive and salaries are not much better than on the mainland.

We helped our youngest pay off her school loans after graduation. We liked that approach vs a "full ride" mom-and-dad-scholarship-to-the-school-of-your-choice up front. Keeps the student focused and encourages buy-in when s/he looks for a nice State school instead of a "fancy" East or West Coast school. Again, very much a personal choice in the family and also very much YMMV. As the saying goes: "You can borrow for school but you can't borrow for retirement."

 

[Montecfo]

Are their educations funded? I woud start there.

Otherwise I find it a tough question that I am also struggling with.

 

[rkser]

We fully paid for both the kids education & dorms up till their post graduation degrees by 529s.They started out loan free, our parents paid for ours .
Daughter went to an Ivy League undergrad & a State School for MD, after her marriage they soon paid off son in law’s loans .
Son went to the State School for his undergrad & grad school. We had left over from his 529, which we transferred to grand children’s 529s.

 

[frank05]

Younger grandkids we take on multi-generational trips sponsored by companies like Rhodes Scholar. Older kids, we aid financially since they will be impacted most by the AI economy. Our own kids, fortunately, are ok financially so no money while we are alive.

 

[CalBird]

Truly first world problem that many people dreamt about. Your next generation will probably do well as much as you if not more. Transferring money from your name to their name will probably not making much meaningful change to their life.

 

[TheWizard]

Younger grandkids we take on multi-generational trips sponsored by companies like Rhodes Scholar. Older kids, we aid financially since they will be impacted most by the AI economy. Our own kids, fortunately, are ok financially so no money while we are alive.

"Road Scholar".

Educational Travel & Learning Adventures | Road Scholar

Not-for-profit creator of experiential travel opportunities all over the world for age 50+ Group or solo packages include lodging, meals, & expert-guided educational tours. Educational Adventures. 2023 & 2024 Enrolling Now. Non-Profit Organization.

www.roadscholar.org

 

[Souschef]

I firmly believe in the "warm hands" approach. When we sold our paid off home to move to an apartment, we split the proceeds among our 4 sons.
When an annuity DW held matured, she split the proceeds between her sons.
Evey year I allocate some of my RMD to our 4 sons.
We have more than we need, so it just makes sense.

 

[TheWizard]

Our daughter is 41, an MD & is married to an MD, they are doing well.

Our son is 33, has a MBA & works with a University, our daughter in law has a PhD & works at the same university. They are also doing fair to well, I think they bring in about $225k/yr combined.

Wizard, we transfer shares on phone 800 number, of VTI & VXUS at Fidelity to their brokerage account #s in Fidelity

I see.
But when you transfer ETF shares, I assume the cost basis transfers as well, meaning no stepped up basis. And a bit of tax liability.

I think my preference would be a cash transfer to the son's taxable account settlement fund. Thus $10,000 to buy whatever ETFs he wants and easier to TLH going forward if that presents itself...

 

[SecondCor521]

Form 709s for gift taxes are filed separately from your income tax return.

You may or may not have an estate tax issue. The federal exemption amount is $15M per person this year and adjusted going forward by CPI I believe. I would figure out which of your assets are included in whose estates, and do some projections forward.

With your aggressive asset allocation, if you do or will have an estate tax issue, you're probably recognizing it too late and it is probably unavoidable now. You won't be able to reasonably gift / spend / donate enough to make a difference without incurring too high of a tax bill.

Some things that won't really move the needle that much but will help some and may make you feel better:

1. QCDs from each of you from traditional IRA distributions, up to ~$100K per year per person. This only makes sense if you're charitably inclined anyways.

2. Roth conversions if paying the taxes yourselves makes sense. Since your kids are probably in a higher bracket than you are, I would bet this makes sense. Inherited Roths generally get 10 year treatment but grow and are distributed tax free.

3. When the grandchildren are old enough, you can gift $19K per year to each of them.

4. You can pay tuition or medical expenses for anyone (including your kids and grandkids) as long as it's paid directly. These exceptions don't accrue against the $19K annual gift tax exemption amount.

5. 529s for grandkids, especially if you have a state tax benefit that you like. But this competes with #4.

6. When you pass, recommend to your kids that they consider disclaiming a fraction of their IRAs. If you list your kids per stirpes, then their disclaimed portion goes to their kids. The advantage here is that, for example, instead of your child having an $80K inherited traditional IRA distribution, your child and their three children could each have a $20K inherited traditional IRA distribution. It spreads the tax bill around and keeps those distributions in lower brackets.

7. Leaving things to your kids in trust apparently keeps it out of their estates. However, this way also means the loss of a step up at their death I believe.

8. If the above isn't enough, go see a capable and creative estate planning attorney (not one who just does boilerplate wills and trusts).

 

[aaronc879]

I would start by giving to the spouses as well. If you have siblings then you could give to them. Could even go to nieces and nephews. Otherwise, I guess you better think of some ways to increase your spending by a lot.