The pros and cons of gifting money to children early?

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flyingaway
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The pros and cons of gifting money to children early?

Post by flyingaway »

Let's say that we have enough money for us (at least we think so) and we plan to give some money eventually to our son (now in his early 20s). We could give him some money yearly from now on or let him inherit the money after we die. I am trying to figure out the pros and cons of gifting some money to him yearly within the IRS gift limit.

Pros: (1) His asset level and income level are much lower than ours. So his tax burden will be much lower than ours with the money invested with him. (2) By gifting the money gradually, he might avoid some inheritance tax problem down the road. (3) Once the money is gifted to him, it is easier for us to plan for our future.

Cons: My son does not have a family yet. The money gifted to him and growing with him might become community property if he gets married and divorced later. In this case, it might be better to give him the money after he has a stable family, for example, in his 40s.

What are the additional pros and cons that you may suggest?
Normchad
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Re: The pros and cons of gifting money to children early?

Post by Normchad »

I’m a fan of the idea when you can afford it.

It seems to me that it would be much more beneficial to them early on, then getting it when they’re 60 and maybe don’t even need it.

For instance, I might consider giving my kid the down payment for a house in a nicer neighborhood than she could otherwise afford.

Currently, she is starting out and saving in her 401k plan. I am willing to fully fund her Roth IRA. She us young, so I like the early start and increased compounding. But I also like that it doesn’t directly lead to increased consumption on her part.

She’s doing all the right things in life. If I can help her out, I will.....
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Re: The pros and cons of gifting money to children early?

Post by Wanderingwheelz »

If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
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Monster99
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Re: The pros and cons of gifting money to children early?

Post by Monster99 »

From a personal perspective, my father gifted money to my brother and myself (and our spouses) in the nineties - those funds now tend to throw off a significant amount of dividends that limit my current Roth conversions in the 12% bracket. The good thing is that it allowed more contributions to tax deferred during my working career.
Normchad
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Re: The pros and cons of gifting money to children early?

Post by Normchad »

Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
This is certainly something to keep in mind and watch out for. I agree with that. Whether or not it actually does that, probably varies from kid to kid.
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Re: The pros and cons of gifting money to children early?

Post by Taylor Larimore »

flyingaway wrote: Tue Dec 15, 2020 11:08 am Let's say that we have enough money for us (at least we think so) and we plan to give some money eventually to our son (now in his early 20s). We could give him some money yearly from now on or let him inherit the money after we die. I am trying to figure out the pros and cons of gifting some money to him yearly within the IRS gift limit.
flyingaway:

If you have "enough money" I think it is usually a wonderful idea to give children their inheritance while parents are all still alive. For example, my two remaining sons (we had three) take me to lunch every Monday. It is a highlight of my life.

My wife and I started doing this in the form of a monthly allowance 16 years ago. It made us happy and our children are very grateful to receive additional income when they need it most.

Best wishes.
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beernutz
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Re: The pros and cons of gifting money to children early?

Post by beernutz »

My wife and I made the decision this year to fund our mid-20s children's Roth IRAs each year for at least 10 years.

I inherited a 403b this year from my mom and will receive annual distributions from it for 10 years. We explained to the kids that we were passing this inheritance onto them as a legacy of my mom. This also gave me the opportunity to explain the importance of planning for and contributing to retirement early as it can have a huge difference later on.

The annual distributions, at least initially, won't cover both IRA contributions so we'll be kicking in some of our own money to make up the difference.
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Wanderingwheelz
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Re: The pros and cons of gifting money to children early?

Post by Wanderingwheelz »

beernutz wrote: Tue Dec 15, 2020 11:42 am My wife and I made the decision this year to fund our mid-20s children's Roth IRAs each year for at least 10 years.

I inherited a 403b this year from my mom and will receive annual distributions from it for 10 years. We explained to the kids that we were passing this inheritance onto them as a legacy of my mom. This also gave me the opportunity to explain the importance of planning for and contributing to retirement early as it can have a huge difference later on.

The annual distributions, at least initially, won't cover both IRA contributions so we'll be kicking in some of our own money to make up the difference.
Excellent.

When my mom died in her 50s my dad used her pension to immediately began to fund 529 plans for each grandchild and subsequently each one that was born.

My daughter graduated from a Top 50 university last spring and I paid for essentially none of it. The best gift is the one that keeps giving. My daughter will be able to fully fund a Roth this year since she’s got good cash flow by way of no student debt.
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Re: The pros and cons of gifting money to children early?

Post by WarAdmiral »

flyingaway wrote: Tue Dec 15, 2020 11:08 am Cons: My son does not have a family yet. The money gifted to him and growing with him might become community property if he gets married and divorced later. In this case, it might be better to give him the money after he has a stable family, for example, in his 40s.
You should explore Estate Planning. I believe there is a way around this by means of establishing a Trust. The Trust will be in your name only but he will be free to dip into it. In event of a divorce, he won't lose what he doesn't own.
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beernutz
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Re: The pros and cons of gifting money to children early?

Post by beernutz »

Wanderingwheelz wrote: Tue Dec 15, 2020 11:45 am
beernutz wrote: Tue Dec 15, 2020 11:42 am My wife and I made the decision this year to fund our mid-20s children's Roth IRAs each year for at least 10 years.

I inherited a 403b this year from my mom and will receive annual distributions from it for 10 years. We explained to the kids that we were passing this inheritance onto them as a legacy of my mom. This also gave me the opportunity to explain the importance of planning for and contributing to retirement early as it can have a huge difference later on.

The annual distributions, at least initially, won't cover both IRA contributions so we'll be kicking in some of our own money to make up the difference.
Excellent.

When my mom died in her 50s my dad used her pension to immediately began to fund 529 plans for each grandchild and subsequently each one that was born.

My daughter graduated from a Top 50 university last spring and I paid for essentially none of it. The best gift is the one that keeps giving. My daughter will be able to fully fund a Roth this year since she’s got good cash flow by way of no student debt.
That's a great legacy and that your daughter is now able to pay it forward. My mom also funded 529 plans for each of her grandchildren including my two daughters which paid for their freshman and sophomore years. They both graduated with zero college debt.
Last edited by beernutz on Tue Dec 15, 2020 12:50 pm, edited 1 time in total.
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JDCarpenter
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Re: The pros and cons of gifting money to children early?

Post by JDCarpenter »

Regarding cons, if you are worried about divorce and splitting of assets, I don't know that it ever would become "safe." (Divorce rates for those over 54 have doubled since 1990, with 55-64 year olds not being that much different than those under 40; WSJ, numbers column, 6.21.19)

As for us, we plan to fairly aggressively gift to our late 20s to early 30s sons and D-I-Ls for the next four years. They all are on good tracks, but with children arriving, they can benefit from some extra chunks of tax free money.
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Re: The pros and cons of gifting money to children early?

Post by Stinky »

Normchad wrote: Tue Dec 15, 2020 11:13 am I’m a fan of the idea when you can afford it.

It seems to me that it would be much more beneficial to them early on, then getting it when they’re 60 and maybe don’t even need it.
I absolutely agree with this.

We’re giving an annual amount to each of our adult children, well below the gift tax limit. We’re confident that we will be able to maintain this level of annual gift until we pass away.

Our adult children can enjoy the money now, and plan on it in their budget, especially while they have young children. No reason to wait until our kids are in their 50s or 60s to inherit it.
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TheTimeLord
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Re: The pros and cons of gifting money to children early?

Post by TheTimeLord »

The greatest financial gift a parent can give their children is not being financially dependent on them in old age.
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Re: The pros and cons of gifting money to children early?

Post by nullisland »

flyingaway wrote: Tue Dec 15, 2020 11:08 am Cons: My son does not have a family yet. The money gifted to him and growing with him might become community property if he gets married and divorced later. In this case, it might be better to give him the money after he has a stable family, for example, in his 40s.

What are the additional pros and cons that you may suggest?
A prenup is the better and more straightforward way of handling the financial implications of a divorce, I wouldn't factor this in to your decision. I honestly think everyone should have a prenup, it's a healthy way of coming to a shared understanding of goals and risk with your partner.

Have you asked your son what he wants? My parents helped me out at times when I was struggling around that age and I was grateful for the backstop, but it was still important to me that I pay my own way when I could. He might not actually want an allowance.
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Re: The pros and cons of gifting money to children early?

Post by KlangFool »

OP,

1) Would your gift destroy your children's life financially?


2) Do you know whether your children can manage the gift wisely?


3) Won't you want to know this while you are alive? Then, you could do something about this while you are alive.

I come from a multigeneration business family. We believe in training and coaching our children on money management as early as possible. And, we believe in letting our children have actual hands-on experience managing their own money as early as possible.


It won't matter how much your gift is. The money will be gone and wasted if the person receiving it has no idea how to manage it.


I believe in progression and pacing of training over many years. For example, if you know that your kids will be inheriting 7 figures, you start by giving them 5 figures. If they can handle it properly, give them 6 figures while you are alive. If they cannot handle it, then, you may have to look into a trust fund to distribute the gift to them.


Please note that tax should come last in this discussion.

As per divorce and gold digger so on, won't you want to get this out of their way by gifting while you are alive? It is better to lose a smaller amount of money before they inherited the whole amount.

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Re: The pros and cons of gifting money to children early?

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I'm against giving anyone "free" money. Let them start from scratch, learn how to save and spend wisely. Builds character IMO.
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Re: The pros and cons of gifting money to children early?

Post by MarkerFM »

Monster99 wrote: Tue Dec 15, 2020 11:33 am From a personal perspective, my father gifted money to my brother and myself (and our spouses) in the nineties - those funds now tend to throw off a significant amount of dividends that limit my current Roth conversions in the 12% bracket. The good thing is that it allowed more contributions to tax deferred during my working career.
You were smart to invest that money. The problem with these gifts IMO is when the kids spend much or all of it instead of saving for their future. My brother gifts his kids monthly amounts that eat into his unified credit. I think only one out of the three save/invest any of this income. We gift our kids annually only up to the annual exclusion. It goes into trusts where it will grow instead of being spent. There are certain provisions where they can get access to that money.
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Re: The pros and cons of gifting money to children early?

Post by TomatoTomahto »

WarAdmiral wrote: Tue Dec 15, 2020 12:14 pm
flyingaway wrote: Tue Dec 15, 2020 11:08 am Cons: My son does not have a family yet. The money gifted to him and growing with him might become community property if he gets married and divorced later. In this case, it might be better to give him the money after he has a stable family, for example, in his 40s.
You should explore Estate Planning. I believe there is a way around this by means of establishing a Trust. The Trust will be in your name only but he will be free to dip into it. In event of a divorce, he won't lose what he doesn't own.
We are gifting to 4 kids, at various life stages and maturity levels. For one, it’s allowing him to get a Masters degree (he’s older than a traditional student). Another has it entirely in trust. Horses for courses.
Trusts are useful in some cases, and not that difficult/expensive to establish.
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Re: The pros and cons of gifting money to children early?

Post by FIREchief »

nullisland wrote: Tue Dec 15, 2020 12:37 pm A prenup is the better and more straightforward way of handling the financial implications of a divorce, I wouldn't factor this in to your decision. I honestly think everyone should have a prenup, it's a healthy way of coming to a shared understanding of goals and risk with your partner.
Do you have a prenup? Was it your idea or your spouse's? (hopefully not your parents) If it was yours, it would be interesting for us to hear how you breached the topic and gained your future spouse's agreement. 8-)
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Re: The pros and cons of gifting money to children early?

Post by FIREchief »

TomatoTomahto wrote: Tue Dec 15, 2020 12:55 pm Another has it entirely in trust. Horses for courses.
Is it a Crummey trust?
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Re: The pros and cons of gifting money to children early?

Post by KlangFool »

theplayer11 wrote: Tue Dec 15, 2020 12:43 pm I'm against giving anyone "free" money. Let them start from scratch, learn how to save and spend wisely. Builds character IMO.

theplayer11,

In some cultures, CASH is an appropriate gifts for a wedding, birthday, and funeral. Are you against that?


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Will do good
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Re: The pros and cons of gifting money to children early?

Post by Will do good »

On the flip side, I have friends who spend their family money freely on cars and toys as adults, today near retirement both don't have enough money and don't have the skill to manage money. YMMV.
Last edited by Will do good on Tue Dec 15, 2020 1:00 pm, edited 1 time in total.
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Re: The pros and cons of gifting money to children early?

Post by TomatoTomahto »

FIREchief wrote: Tue Dec 15, 2020 12:57 pm
TomatoTomahto wrote: Tue Dec 15, 2020 12:55 pm Another has it entirely in trust. Horses for courses.
Is it a Crummey trust?
Yes. I’m hoping maturity will come, but not taking any chances.
I get the FI part but not the RE part of FIRE.
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Re: The pros and cons of gifting money to children early?

Post by FIREchief »

theplayer11 wrote: Tue Dec 15, 2020 12:43 pm I'm against giving anyone "free" money. Let them start from scratch, learn how to save and spend wisely. Builds character IMO.
If you at some point become entitled to an inheritance, do you plan to disclaim it?
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Re: The pros and cons of gifting money to children early?

Post by smitcat »

Normchad wrote: Tue Dec 15, 2020 11:34 am
Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
This is certainly something to keep in mind and watch out for. I agree with that. Whether or not it actually does that, probably varies from kid to kid.
This has not been an issue at all for us.
YMMV
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Re: The pros and cons of gifting money to children early?

Post by FIREchief »

TomatoTomahto wrote: Tue Dec 15, 2020 12:59 pm
FIREchief wrote: Tue Dec 15, 2020 12:57 pm
TomatoTomahto wrote: Tue Dec 15, 2020 12:55 pm Another has it entirely in trust. Horses for courses.
Is it a Crummey trust?
Yes. I’m hoping maturity will come, but not taking any chances.
Thanks. Is it true that Crummey trusts lack some of the asset protections of other trusts due to the fact that the beneficiary did at some point have free access to the money?
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Re: The pros and cons of gifting money to children early?

Post by goblue100 »

theplayer11 wrote: Tue Dec 15, 2020 12:43 pm I'm against giving anyone "free" money. Let them start from scratch, learn how to save and spend wisely. Builds character IMO.
Everyone is entitled to their own viewpoint. My daughter and her husband are doing the things you mention, but if I can help them here and there I'm going to do it. I do think that which comes too easily is not appreciated, but I feel like my daughter and her husband have worked hard enough that they will not take any gifts for granted. And, it is not like I am planning on giving so much that their way is totally greased.
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Re: The pros and cons of gifting money to children early?

Post by Northster »

As someone who received a sizeable inheritance at age 66, when I really didn't need it, I am in favor of some early gifting. I also have made a point of telling the recipients roughly how much they will eventually receive. I trust them to use it wisely.
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Re: The pros and cons of gifting money to children early?

Post by TomatoTomahto »

FIREchief wrote: Tue Dec 15, 2020 1:01 pm
TomatoTomahto wrote: Tue Dec 15, 2020 12:59 pm
FIREchief wrote: Tue Dec 15, 2020 12:57 pm
TomatoTomahto wrote: Tue Dec 15, 2020 12:55 pm Another has it entirely in trust. Horses for courses.
Is it a Crummey trust?
Yes. I’m hoping maturity will come, but not taking any chances.
Thanks. Is it true that Crummey trusts lack some of the asset protections of other trusts due to the fact that the beneficiary did at some point have free access to the money?
IANAL, but our estate attorney did not make a point of mentioning it. I think after the “waiting period,” which can be short (30 days, eg), the access to the money is restricted just as in any trust.
I get the FI part but not the RE part of FIRE.
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Re: The pros and cons of gifting money to children early?

Post by TomatoTomahto »

Northster wrote: Tue Dec 15, 2020 1:04 pm As someone who received a sizeable inheritance at age 66, when I really didn't need it, I am in favor of some early gifting. I also have made a point of telling the recipients roughly how much they will eventually receive. I trust them to use it wisely.
I wrote my kids a letter and told them that for at least n years, they’d get the annual exclusion amount. Then, depending on market returns, our expenses, etc., they might continue to receive something, but not to count on it. When n years are approaching, I might give them an update.
I get the FI part but not the RE part of FIRE.
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flyingaway
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Re: The pros and cons of gifting money to children early?

Post by flyingaway »

Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
Yes. This (he loses motivation to make money) is a real concern. I am struggling at this possibility.
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flyingaway
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Re: The pros and cons of gifting money to children early?

Post by flyingaway »

theplayer11 wrote: Tue Dec 15, 2020 12:43 pm I'm against giving anyone "free" money. Let them start from scratch, learn how to save and spend wisely. Builds character IMO.
If you have some surplus money left, what do you plan to do with it?
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Re: The pros and cons of gifting money to children early?

Post by TomatoTomahto »

flyingaway wrote: Tue Dec 15, 2020 1:15 pm
Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
Yes. This (he loses motivation to make money) is a real concern. I am struggling at this possibility.
You know your child better than we do. Of our two still in their 20s, for one we put it in a trust. For the other, he just socks it away and it hasn’t changed his lifestyle or ambition one iota.
I get the FI part but not the RE part of FIRE.
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Re: The pros and cons of gifting money to children early?

Post by 7eight9 »

Northster wrote: Tue Dec 15, 2020 1:04 pm As someone who received a sizeable inheritance at age 66, when I really didn't need it, I am in favor of some early gifting. I also have made a point of telling the recipients roughly how much they will eventually receive. I trust them to use it wisely.
^ This

By the time I inherit anything it will be too late to make any difference in my life. Ten or twenty years ago might have allowed us to do things differently.
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Re: The pros and cons of gifting money to children early?

Post by Alan S. »

TomatoTomahto wrote: Tue Dec 15, 2020 1:09 pm
Northster wrote: Tue Dec 15, 2020 1:04 pm As someone who received a sizeable inheritance at age 66, when I really didn't need it, I am in favor of some early gifting. I also have made a point of telling the recipients roughly how much they will eventually receive. I trust them to use it wisely.
I wrote my kids a letter and told them that for at least n years, they’d get the annual exclusion amount. Then, depending on market returns, our expenses, etc., they might continue to receive something, but not to count on it. When n years are approaching, I might give them an update.
It is a good idea to periodically put these gifts into perspective for the child. Otherwise, if they receive gifts like clockwork for a number of years, they often tend to take it for granted, and even feel entitled in some cases. Since you cannot totally guarantee your own financial picture, it is wise to tell them occasionally not to count on the gifts long into the future. On the other hand, if you have reasons to stop or reduce the gifts, you should give them a heads up early on and not pull the rug out.
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Re: The pros and cons of gifting money to children early?

Post by gch »

I think I would have a hard time regularly giving my children cash early in their careers. I would however consider helping out with non cash high priced items like home down payment, car, grandkids schooling, perhaps even IRA contributions.
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Re: The pros and cons of gifting money to children early?

Post by David Jay »

beernutz wrote: Tue Dec 15, 2020 11:42 am My wife and I made the decision this year to fund our mid-20s children's Roth IRAs each year for at least 10 years.

I inherited a 403b this year from my mom and will receive annual distributions from it for 10 years. We explained to the kids that we were passing this inheritance onto them as a legacy of my mom. This also gave me the opportunity to explain the importance of planning for and contributing to retirement early as it can have a huge difference later on.
Love this plan. Great multigenerational use of legacy funds and the Roth is good teaching tool. Also a time limit, as Alan mentions below.
Last edited by David Jay on Tue Dec 15, 2020 1:46 pm, edited 1 time in total.
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Re: The pros and cons of gifting money to children early?

Post by Colorado14 »

7eight9 wrote: Tue Dec 15, 2020 1:35 pm
Northster wrote: Tue Dec 15, 2020 1:04 pm As someone who received a sizeable inheritance at age 66, when I really didn't need it, I am in favor of some early gifting. I also have made a point of telling the recipients roughly how much they will eventually receive. I trust them to use it wisely.
^ This

By the time I inherit anything it will be too late to make any difference in my life. Ten or twenty years ago might have allowed us to do things differently.
Another +1. I inherited some money within the past 3 years and am extremely thankful. It could have been more impactful if it had been gifted 10-20 years ago. Not every situation allows for this sort of gifting however.
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Re: The pros and cons of gifting money to children early?

Post by decapod10 »

flyingaway wrote: Tue Dec 15, 2020 1:15 pm
Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
Yes. This (he loses motivation to make money) is a real concern. I am struggling at this possibility.
I think ultimately it depends on the individual. You could give them smaller amounts at first just to see how they handle the money, and then consider increasing it if you think they are handling it well.

Just remember that the cause and effect of these types of decisions may not be as strong as we might think. Giving someone money does not 100% that person to become lazy. People who didn't receive anything from their parents don't 100% become fiscally responsible people. And a lot people who may have "had their lives ruined" by getting money from the parents probably would have ruined their lives on their own anyway. Correlation is not causation and all of that.

My personal view (though my kids are still young) as that I will probably be more in favor of giving, unless there is something I see in my kids' character that would make me think the money would cause problems. I think it would make me happy to see them enjoy having the money and making their lives easier, if I was reasonably confident that it won't cause problems. Of course there's no way to say with 100% certainty, on the other hand as KlangFool said, it's probably better to find out while I'm alive so I can still help guide them if possible, rather than waiting until they get 100% of my money when I'm dead.
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Lee_WSP
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Re: The pros and cons of gifting money to children early?

Post by Lee_WSP »

I currently like the idea of matching my child's retirement contributions up to the annual exemption.
Wanderingwheelz
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Re: The pros and cons of gifting money to children early?

Post by Wanderingwheelz »

flyingaway wrote: Tue Dec 15, 2020 1:15 pm
Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
Yes. This (he loses motivation to make money) is a real concern. I am struggling at this possibility.
If you have any doubts, I wouldn’t begin gifting substantial money.

Thirty years ago, when I was about your sons age, my parents arranged things so that each of us three kids wouldn’t have access to any of their estate until the oldest child reached age 55 (he is now 52). Their thinking was we’d have made our own way in life By that point and any shaky marriages or whatever would have sorted themselves out by that age.

There’s no right or wrong way to do things, but for my parents they wanted to be sure each of us were incensed to work hard and be ambitious.
Being wrong compounds forever.
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TomatoTomahto
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Re: The pros and cons of gifting money to children early?

Post by TomatoTomahto »

Wanderingwheelz wrote: Tue Dec 15, 2020 2:08 pm There’s no right or wrong way to do things, but for my parents they wanted to be sure each of us were incensed to work hard and be ambitious.
No hard feelings you say? :D

Darned spell check!
I get the FI part but not the RE part of FIRE.
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vitaflo
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Re: The pros and cons of gifting money to children early?

Post by vitaflo »

Normchad wrote: Tue Dec 15, 2020 11:13 am For instance, I might consider giving my kid the down payment for a house in a nicer neighborhood than she could otherwise afford.
This is what my MIL did for my wife and it really helped us a ton. She paid the down payment on our first townhouse so we could avoid PMI. We could easily afford the mortgage but didn't have what we needed saved for the 20% down payment.

We knew this was a one time gift, and it really set us up for success down the road. When we sold the townhouse to buy our first real house we had enough from equity plus savings (because our TH mortgage was cheaper) to do a 20% down payment on the real house on our own.

So if I was gifting money to children I'd look at helping out on those big ticket one-time items. For example, my MIL also paid for half our wedding. Another great help when you're young and getting just started in your career.
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Re: The pros and cons of gifting money to children early?

Post by HomerJ »

Normchad wrote: Tue Dec 15, 2020 11:13 am For instance, I might consider giving my kid the down payment for a house in a nicer neighborhood than she could otherwise afford.
Read The Millionaire Next Door before you do this.

That is generally not a great idea... Higher property taxes, higher maintenance costs, higher "keeping with the next-door neighbor" costs.

But that said... a one-time gift to a child in their 20s or maybe even 30s is a much better idea than on-going annual payments.

That's just my opinion, and I could be wrong, but I think you risk taking away a young person's feeling of accomplishment with an annual "allowance".

Once your kid makes into their late 30s or 40s, and have fully established themselves, then maybe I'll start gifting...
Currently, she is starting out and saving in her 401k plan. I am willing to fully fund her Roth IRA. She us young, so I like the early start and increased compounding. But I also like that it doesn’t directly lead to increased consumption on her part.
This actually is a decent alternative... If it's locked in for retirement, that could work.

Let them live in a crappy apartment for the first few years... It builds character, and they will appreciate what they have later more.

(Yes, yes, I'm speaking in generalities. Each person is different).
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Re: The pros and cons of gifting money to children early?

Post by Donethat96 »

I would not consider giving our kids any significant help until they were in their late 30's or early 40's. I was friends with a pair of brothers in college during the mid '60's who each got a little over $100,000 in a lump sum at that time. It literally ruined both their lives. Neither ever recovered.
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Re: The pros and cons of gifting money to children early?

Post by RadAudit »

Normchad wrote: Tue Dec 15, 2020 11:13 am I’m a fan of the idea when you can afford it.
I'm also a fan of giving it to them when they can handle it. 20s doesn't seem right to me. Late 30s may be right, if you can afford it and if the kids have demonstrated an inclination toward properly managing their money.

Right now, I'm into my early 70s. I'm not sure I and DW can afford it. And I'm afraid what it'll do the kids.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: The pros and cons of gifting money to children early?

Post by dcdowden »

We started by gifting our two children the max amount they could put into a Roth IRA, which is $6,000 in 2021. In fact, I deposited that amount directly into their Roth IRA's that we set up at Vanguard. I also like funding 529's for grandchildren. These are gifts, but generally for longer term goals - not for immediate spending. We now also provide annual gift amounts that they can use for shorter term needs like home ownership and raising a family. I don't see much of a point for my wife and I to continue to accumulate more wealth or stuff that we don't need to live comfortably, when our children could benefit from an advance on their inheritance now.
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Re: The pros and cons of gifting money to children early?

Post by Normchad »

RadAudit wrote: Tue Dec 15, 2020 2:50 pm
Normchad wrote: Tue Dec 15, 2020 11:13 am I’m a fan of the idea when you can afford it.
I'm also a fan of giving it to them when they can handle it. 20s doesn't seem right to me. Late 30s may be right, if you can afford it and if the kids have demonstrated an inclination toward properly managing their money.

Right now, I'm into my early 70s. I'm not sure I and DW can afford it. And I'm afraid what it'll do the kids.
Yeah, you definitely don’t want to do something detrimental for them. And as the airlines say, put on your own mask before helping the kids......

In our case, I do think the 20s is right. I’m also a big fan of letting people screw up. And I think the earlier you screw up, it will be with smaller sums of money, and have fewer long term consequences. So if the kid blows $5000 at the dog track, we all learn from that. Don’t give the kid money..... but if I wait til I’m dead, and give them millions, then they’ll blow millions of cocaine and yachts. And I can’t have that......

Actually that’s a bit flippant. My whole mindset is that we are all a big team. All of us working to foster the success of everybody else. If I’ve got more than I need, I will 100% find a way to use it productively to further the kids success. Or another way, the excess money has to go somewhere. There is no better place than the kid.....

And if I die broke, leaving no inheritance, I am 100% okay with that.
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Re: The pros and cons of gifting money to children early?

Post by Afty »

A pro of gifting early is that you can observe how they handle it with relatively small amounts and correct things while you still have a chance. There are a lot of things that could theoretically go wrong, but who knows if they will when put into practice with your actual kids and not some hypothetical ne’er-do-wells.
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Re: The pros and cons of gifting money to children early?

Post by Afty »

Wanderingwheelz wrote: Tue Dec 15, 2020 11:22 am If his asset and income levels are low (understandable in his 20s), would it please you to see him attain higher and higher levels by means of his earned income? If so, you risk harming his desire to do that if you provide large enough gifts to extinguish his desire to get ahead on his own.
Alternatively, giving gifts might free your child from the need to optimize income in the short term and enable them to make long-term investments (e.g., graduate school) that will pay off in the end. Or it may enable the child to optimize for happiness rather than income.
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