When to gift money to kids -- sooner the better?

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ThankYouJack
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When to gift money to kids -- sooner the better?

Post by ThankYouJack »

I'm reading Die With Zero (per recommendation on here) and although I don't agree fully with all the points in the book, one thing the author notes is that the average age for someone to receive an inheritance is 60 and that money could often be better used sooner in life (often around 35 years old). The author has two kids and puts money into a Trust for them. I can see plusses and minuses to this as it depends on certain circumstances.

What if you start gifting up to the annual gift tax exclusion when your child is 0, for 35+ years? I'm guessing the fees of the Trust could add up, but maybe tax savings would outweigh the fees? How would that impact college financial aid, compared to keeping the money in a brokerage account? I haven't thought or looked into it much at all but am curious to hear some thoughts.
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Lee_WSP
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Re: When to gift money to kids -- sooner the better?

Post by Lee_WSP »

It's not a life insurance trust, so you could serve as sole trustee which would eliminate all of the ongoing costs. It of course comes with some paperwork and formalities, but it's nothing new. Look into a Crummey trust.

I do not know if the FAFSA asks about assets held in trust for the child, someone else will have to answer that question.
MarkerFM
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Re: When to gift money to kids -- sooner the better?

Post by MarkerFM »

We have set up such trusts, and I am the trustee and file the tax returns. Money goes into index funds. Not a big deal. I can't say how it would affect financial aid. The most important thing you have to consider if you do this is whether you will ever need that money again, because once gifted it's gone.
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Re: When to gift money to kids -- sooner the better?

Post by RadAudit »

MarkerFM wrote: Fri Sep 17, 2021 4:44 pm The most important thing you have to consider if you do this is whether you will ever need that money again, because once gifted it's gone.
+1

OP, you're in better shape than I am. I'm 74 and retired. DW is 70. Kids are 35 and 40. I decided this year to start distributing some of the estate to the kids. I figure that it'd be at least another 10 years before both of us would be gone if we waited to distribute the estate until our deaths. This way the kids could use some of the money to help with the costs of raising the grandkids. And, since the annual amount would be small, hopefully, they won't mess up but so much.

Now this is probably heresy for BHers. But, we are contributing some money to a taxable account for the grandkids' college educations vs 529s. That is because that way we can equal out the annual distributions to the kids vs. letting them get into a fight in front of the lawyers over who got more from the estate.

PS: I send the kids an annual letter on how the estate stands. It always includes the line that their biggest concern isn't how much they'll inherit. It's where in their back yard they're going to let me pitch my tent when I show up on their doorstep old and broke.
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secondcor521
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Re: When to gift money to kids -- sooner the better?

Post by secondcor521 »

Someone will have to explain the tax savings of a trust to me. My understanding is that trust tax brackets are smaller, and the tax rates higher, than money held in taxable. There may be advanced estate tax savings options that involve trusts, but on the income tax side I don't see it.

As far as financial aid goes, there's this article. Seems like trust assets are worse than taxable because they're treated as student and not parental assets:

https://www.savingforcollege.com/articl ... or-college

I do agree with the gist of the argument that giving to the kids earlier is better, as long as it doesn't create an Economic Outpatient Care scenario. In my case, my intent is to start gifting outright to my kids in the next several years and skip trusts altogether (more BH heresy!).
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Re: When to gift money to kids -- sooner the better?

Post by Sandtrap »

ThankYouJack wrote: Fri Sep 17, 2021 1:09 pm I'm reading Die With Zero (per recommendation on here) and although I don't agree fully with all the points in the book, one thing the author notes is that the average age for someone to receive an inheritance is 60 and that money could often be better used sooner in life (often around 35 years old). The author has two kids and puts money into a Trust for them. I can see plusses and minuses to this as it depends on certain circumstances.

What if you start gifting up to the annual gift tax exclusion when your child is 0, for 35+ years? I'm guessing the fees of the Trust could add up, but maybe tax savings would outweigh the fees? How would that impact college financial aid, compared to keeping the money in a brokerage account? I haven't thought or looked into it much at all but am curious to hear some thoughts.
As an aside to consider:

Read: "Beyond the Grave" by Condon, (avail. Amazon) for some interesting reading on family dynamics and the change of family dynamics when it comes to inheritances, estates, etc. (not a legal book though written by 2 attorneys) but can be very relevant.

Seek legal counsel for estate planning that includes a trust/will/etc. that works for you specifically.

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ThankYouJack
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Re: When to gift money to kids -- sooner the better?

Post by ThankYouJack »

Thanks all. I'm still torn on this so will research it more than reach out to an estate attorney if I decide to seek more answers

The financial aid eligibility probably won't come into play. But it's interesting to think about would it be better to have say $100k in a brokerage or $100k in a trust (divided by multiple kids).

MarkerFM wrote: Fri Sep 17, 2021 4:44 pm The most important thing you have to consider if you do this is whether you will ever need that money again, because once gifted it's gone.


Yep, good point about it being gone. I'd like to think if I gave away most of my estate to my kids early they'd help support if the rare chance that's it's needed later in life, but who knows. I might also look into long term care insurance when I get closer to 60.

RadAudit wrote: Fri Sep 17, 2021 5:08 pm
Now this is probably heresy for BHers. But, we are contributing some money to a taxable account for the grandkids' college educations vs 529s.

Using a taxable account for grandkids instead of a 529 is exactly what Jack Bogle did, so not at all BH heresy.

https://www.reuters.com/article/us-colu ... LI20120911
Q: Do you set a little aside for those grandkids in 529 college-savings plans? (Vanguard has about $40 billion in assets in 27 state 529 plans.)

A: I don’t really like the idea of tying up your money in 529 plans, because of all the restrictions on withdrawals. I’m not against them, I just like having more flexibility than being required to use those funds specifically for educational purposes. We do save a little money for all my grandkids every year, but we just chose the Vanguard Balanced Index Fund (VBINX). It’s about 60 percent stocks, 40 percent bonds, and it’s been wonderful. We give them what we can within annual gift-tax limitations, and put it all into that very tax-efficient fund.
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Re: When to gift money to kids -- sooner the better?

Post by delamer »

RadAudit wrote: Fri Sep 17, 2021 5:08 pm
MarkerFM wrote: Fri Sep 17, 2021 4:44 pm The most important thing you have to consider if you do this is whether you will ever need that money again, because once gifted it's gone.
+1

OP, you're in better shape than I am. I'm 74 and retired. DW is 70. Kids are 35 and 40. I decided this year to start distributing some of the estate to the kids. I figure that it'd be at least another 10 years before both of us would be gone if we waited to distribute the estate until our deaths. This way the kids could use some of the money to help with the costs of raising the grandkids. And, since the annual amount would be small, hopefully, they won't mess up but so much.

Now this is probably heresy for BHers. But, we are contributing some money to a taxable account for the grandkids' college educations vs 529s. That is because that way we can equal out the annual distributions to the kids vs. letting them get into a fight in front of the lawyers over who got more from the estate.

PS: I send the kids an annual letter on how the estate stands. It always includes the line that their biggest concern isn't how much they'll inherit. It's where in their back yard they're going to let me pitch my tent when I show up on their doorstep old and broke.
Why does contributing to a taxable account allow you to equalize annual distributions while contributing to 529 plans doesn’t?
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Re: When to gift money to kids -- sooner the better?

Post by cchrissyy »

ThankYouJack wrote: Fri Sep 17, 2021 1:09 pm What if you start gifting up to the annual gift tax exclusion when your child is 0, for 35+ years? I'm guessing the fees of the Trust could add up, but maybe tax savings would outweigh the fees?
Why do you think this needs a trust?

you can open a custodial bank or brokerage account in each kid's name
once they have earned income as teens, you can also fund a custodial roth ira
once they are adults, they manage their own brokerage and ira but you can continue making annual gifts

to me, that covers 0 to 35+ just fine
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Will do good
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Re: When to gift money to kids -- sooner the better?

Post by Will do good »

My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
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Re: When to gift money to kids -- sooner the better?

Post by LilyFleur »

Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
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Re: When to gift money to kids -- sooner the better?

Post by WhiteMaxima »

If they don't do Roth or 529, gift cash to fund these. No gift to sponsor their luxury life style.
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Re: When to gift money to kids -- sooner the better?

Post by WhiteMaxima »

If they don't do Roth or 529, gift cash to fund these. No gift to sponsor their luxury life style.
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Re: When to gift money to kids -- sooner the better?

Post by Will do good »

LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
I hear you just don't know what is right for me and my kids.

According to The millionaires next door book, by helping them with down payment to buy into more expensive home then they can on their own isn't a good idea. Then would you help with a nicer car or country club or private school for your grandkids to fit into their new nicer area?
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ThankYouJack
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Re: When to gift money to kids -- sooner the better?

Post by ThankYouJack »

cchrissyy wrote: Sat Sep 18, 2021 12:51 pm
ThankYouJack wrote: Fri Sep 17, 2021 1:09 pm What if you start gifting up to the annual gift tax exclusion when your child is 0, for 35+ years? I'm guessing the fees of the Trust could add up, but maybe tax savings would outweigh the fees?
Why do you think this needs a trust?

you can open a custodial bank or brokerage account in each kid's name
once they have earned income as teens, you can also fund a custodial roth ira
once they are adults, they manage their own brokerage and ira but you can continue making annual gifts

to me, that covers 0 to 35+ just fine
I guess it depends on the amount of money in the custodial account. I wouldn't want them to access all of the money (assuming it's a significant amount) when they turn 18 or 21.
Lee_WSP wrote: Fri Sep 17, 2021 2:25 pm It's not a life insurance trust, so you could serve as sole trustee which would eliminate all of the ongoing costs. It of course comes with some paperwork and formalities, but it's nothing new. Look into a Crummey trust.
Thanks, I started looking into it. It seems complex with regard to taxes (not surprisingly). I like to keep things simple unless there's a decent tax savings, so may not pursue it and just wait to gift money to my kids.
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
I can see how this could be a concern (especially if it's a significant amount of money). On the flip side, I have some friends who come from wealthy families and received large inheritances but are very driven and doing extremely well on their own. I guess it depends on the person and situation.
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Re: When to gift money to kids -- sooner the better?

Post by Lee_WSP »

The annual gift tax exclusion of $15,000 per person per person ($30k from a couple to an individual or $60k from one couple to another) is not going to make the giftee jump from one social class to another unless they are actually in dire need of such help (ie they're in the bottom half of the income distribution).

As such, I strongly believe that the fear of one's annual exclusion gifting "spoiling" the children is not based on highly rational and analytical thinking.
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Re: When to gift money to kids -- sooner the better?

Post by delamer »

Will do good wrote: Sat Sep 18, 2021 1:22 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
I hear you just don't know what is right for me and my kids.

According to The millionaires next door book, by helping them with down payment to buy into more expensive home then they can on their own isn't a good idea. Then would you help with a nicer car or country club or private school for your grandkids to fit into their new nicer area?
It’s hard to imagine that someone wouldn’t know an adult child well enough to determine the likelihood that gifting them $X/year (or money for a downpayment or whatever) will turn them into an entitled wastrel.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: When to gift money to kids -- sooner the better?

Post by Broken Man 1999 »

LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
We gave each DD $10,000 once they had bought their first homes. We didn't want to have them upgrade their purchase using our gift. Thing is, they used some of the funds to make their homes more accessible to me, which though thoughtful of them, wasn't my intent.

DW and I funded their college degrees, through graduate level for two. So they got a good start with zero debt leaving college. I intend to make the same opportunity possible to the grandchildren as well. Though private universities might need some contribution from the parents. Public college will not, unless something like medical degrees are sought. So, we have removed some expenses from DDs, or at least lessened the funds needed.

I struggle with giving large sums to DDs now because of fear of future medical needs. I certainly don't want to become a burden on anyone.

All DDs have exceeded us in many respects. DW and I started our marriage with nothing but high school diplomas, and minimum wage jobs. Each DD and their spouses are college educated, and deep into successful careers. No one had to struggle with minimum wage jobs. They were smart enough to get their college degrees out of the way before marriage.

We were married at 18, and had two children, and another on the way by the time I finished my undergraduate degree, 10 years out of high school. Not the typical smartest route, but all in all it did work.

So, I have zero concerns giving generously to the DDs, their trajectory is great already, but still I worry about how my medical needs will affect our estate.

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Re: When to gift money to kids -- sooner the better?

Post by LilyFleur »

Will do good wrote: Sat Sep 18, 2021 1:22 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
I hear you just don't know what is right for me and my kids.

According to The millionaires next door book, by helping them with down payment to buy into more expensive home then they can on their own isn't a good idea. Then would you help with a nicer car or country club or private school for your grandkids to fit into their new nicer area?
It didn't work that way when both sets of parents helped my ex-husband and I to buy our first house. We were careful with money and raised our children to be careful with money. I think it probably depends on the child. It almost seems like people are born savers, or born spenders. Kind of like spelling (good or not), or weight (heavier or thin). We all have natural tendencies. In a VHCOL area, the choice for my children will be very high rent or an expensive, very small house or condo. I'm waiting to see if they want to move to MCOL or LCOL areas. They are in their 20s and not ready to be homeowners yet.
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Re: When to gift money to kids -- sooner the better?

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Broken Man 1999 wrote: Sat Sep 18, 2021 2:04 pm
I struggle with giving large sums to DDs now because of fear of future medical needs. I certainly don't want to become a burden on anyone.
Actual question as I would like to get some different perspectives and answers.

Have you looked into long term care insurance? If so, why didn't you opt for it?
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Re: When to gift money to kids -- sooner the better?

Post by Broken Man 1999 »

delamer wrote: Sat Sep 18, 2021 1:57 pm
Will do good wrote: Sat Sep 18, 2021 1:22 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
I hear you just don't know what is right for me and my kids.

According to The millionaires next door book, by helping them with down payment to buy into more expensive home then they can on their own isn't a good idea. Then would you help with a nicer car or country club or private school for your grandkids to fit into their new nicer area?
It’s hard to imagine that someone wouldn’t know an adult child well enough to determine the likelihood that gifting them $X/year (or money for a downpayment or whatever) will turn them into an entitled wastrel.
As parents we all have had at least 18 years or so to observe our children and their character/ambition/initiative. Sure, there will be some percentage that will go off the rails, but is that occurrence really a complete surprise? Perhaps a small subset of those going of the rails might exist, flying under the radar, with unsuspecting parents. And, admittedly, there are children who might have been better off being raised by wolves.

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ThankYouJack
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Re: When to gift money to kids -- sooner the better?

Post by ThankYouJack »

Broken Man 1999 wrote: Sat Sep 18, 2021 2:04 pm
I struggle with giving large sums to DDs now because of fear of future medical needs. I certainly don't want to become a burden on anyone.
That's a concern with me as well. Would long term care insurance make sense if it's a big concern?
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Re: When to gift money to kids -- sooner the better?

Post by DoubleComma »

In my family, it was made clear by my parents we kids could take some risks others might not be able to because they had our backs. They never gave us money for homes, cars, vacations or just simply to invest; but I was able to run with lower emergency funds and/or take professional risks because they would and could backstop us.

Not that I’m a parent I think I’ll do something similar. Certainly we will pay for college (within reason). We will also back stop them early in life so they can find their path, again within limits. I know my middle child is very right brian oriented where the others are definitely more left brian centric. I won’t support a “starving artist” in perpetuity, but I will absolutely support her in pursing an arts-centric education and coach into a career that motivates her….even if that means a potential for a lower lifetime earnings potential.

I don’t think there is a right answer to how & when to distribute resources. Not do I think properly supporting kids should remove their drive to be self sufficient.
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Re: When to gift money to kids -- sooner the better?

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LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
curious on why you added graduate degree or even undergraduate. Many people work extremely hard without a college degree.
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Re: When to gift money to kids -- sooner the better?

Post by Broken Man 1999 »

Lee_WSP wrote: Sat Sep 18, 2021 2:14 pm
Broken Man 1999 wrote: Sat Sep 18, 2021 2:04 pm
I struggle with giving large sums to DDs now because of fear of future medical needs. I certainly don't want to become a burden on anyone.
Actual question as I would like to get some different perspectives and answers.

Have you looked into long term care insurance? If so, why didn't you opt for it?
I had a LTC policy when I was injured. My policy paid out $275,000, paid for my aides for many years. We felt getting DW back in her career was better than having her manage my care. It was the right decision, but it exhausted my LTC policy. I'm self-pay now.

I doubt seriously I could find another policy given my physical condition. If I have to go to a LTC facility my expenses would be much more than they are today.

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Re: When to gift money to kids -- sooner the better?

Post by Broken Man 1999 »

ThankYouJack wrote: Sat Sep 18, 2021 2:16 pm
Broken Man 1999 wrote: Sat Sep 18, 2021 2:04 pm
I struggle with giving large sums to DDs now because of fear of future medical needs. I certainly don't want to become a burden on anyone.
That's a concern with me as well. Would long term care insurance make sense if it's a big concern?
Sure. Though depending on age/health it might be difficult to obtain. With enough money, self-insuring is another possibility.

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Re: When to gift money to kids -- sooner the better?

Post by smitcat »

delamer wrote: Sat Sep 18, 2021 1:57 pm
Will do good wrote: Sat Sep 18, 2021 1:22 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
I hear you just don't know what is right for me and my kids.

According to The millionaires next door book, by helping them with down payment to buy into more expensive home then they can on their own isn't a good idea. Then would you help with a nicer car or country club or private school for your grandkids to fit into their new nicer area?
It’s hard to imagine that someone wouldn’t know an adult child well enough to determine the likelihood that gifting them $X/year (or money for a downpayment or whatever) will turn them into an entitled wastrel.
"It’s hard to imagine that someone wouldn’t know an adult child well enough to determine the likelihood that gifting them $X/year (or money for a downpayment or whatever) will turn them into an entitled wastrel."
Absolutley agreed - equally hard to imagine running our lives based on any book !!
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Re: When to gift money to kids -- sooner the better?

Post by jharkin »

Lee_WSP wrote: Sat Sep 18, 2021 1:23 pm The annual gift tax exclusion of $15,000 per person per person ($30k from a couple to an individual or $60k from one couple to another) is not going to make the giftee jump from one social class to another unless they are actually in dire need of such help (ie they're in the bottom half of the income distribution).

As such, I strongly believe that the fear of one's annual exclusion gifting "spoiling" the children is not based on highly rational and analytical thinking.
?

I think your perception of the income distribution may be a bit screwed. My household income is close to top 5% nationally, and I can tell you that an extra 60k after tax would aloe us to basically double annual spending. For a majority of households that number would double gross pretax income.
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Re: When to gift money to kids -- sooner the better?

Post by Lee_WSP »

jharkin wrote: Sat Sep 18, 2021 3:39 pm
Lee_WSP wrote: Sat Sep 18, 2021 1:23 pm The annual gift tax exclusion of $15,000 per person per person ($30k from a couple to an individual or $60k from one couple to another) is not going to make the giftee jump from one social class to another unless they are actually in dire need of such help (ie they're in the bottom half of the income distribution).

As such, I strongly believe that the fear of one's annual exclusion gifting "spoiling" the children is not based on highly rational and analytical thinking.
?

I think your perception of the income distribution may be a bit screwed. My household income is close to top 5% nationally, and I can tell you that an extra 60k after tax would aloe us to basically double annual spending. For a majority of households that number would double gross pretax income.
Median salary is around 50-60k
Upper middle salary is around 100k
Five percenter is around 250k
One percenter is around 500k

Of course it is more impactful the lower the recipient is on the scale. That's my whole point. If you have the means and your children can use it, give it to them now, it's unlikely to turn them into something they aren't already.

But by net worth the numbers get much more skewed.

Top 5/10% is several million, deca million even. Whereas the median is less than 200k. So, no, sixty thousand a year isn't going to catapult a couple up the rungs much. But let's be real here, no one in this thread is considering that much money per year, so you're taking my statement out of context.
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Re: When to gift money to kids -- sooner the better?

Post by KlangFool »

ThankYouJack wrote: Fri Sep 17, 2021 1:09 pm
The author has two kids and puts money into a Trust for them. I can see plusses and minuses to this as it depends on certain circumstances.
ThankYouJack,

1) You should give out some while you are alive. For example, contribute to their Roth IRA every year.

2) You should give out some CASH too and see how your kids manage the money.

3) While you are alive, you can adjust your plan based on how your kids manage your gifts.

4) It would be too late to change anything after you die.

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Re: When to gift money to kids -- sooner the better?

Post by KlangFool »

Lee_WSP wrote: Sat Sep 18, 2021 3:44 pm
If you have the means and your children can use it, give it to them now, it's unlikely to turn them into something they aren't already.
Lee_WSP,

Even if it does, OP can do something about this while he is alive.

It is NOT all or none. Give some and see how they handle it. It is a test.

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Re: When to gift money to kids -- sooner the better?

Post by Lee_WSP »

KlangFool wrote: Sat Sep 18, 2021 3:54 pm
Lee_WSP wrote: Sat Sep 18, 2021 3:44 pm
If you have the means and your children can use it, give it to them now, it's unlikely to turn them into something they aren't already.
Lee_WSP,

Even if it does, OP can do something about this while he is alive.

It is NOT all or none. Give some and see how they handle it. It is a test.

KlangFool
In my opinion, it doesn't change them; it just makes what was already there obvious to the parent.

If one wanted to attach some strings or conditions, matching the children's retirement savings is an easy method. You can match their salary when they're minors to incentivize working. All sorts of nudges are available.
Last edited by Lee_WSP on Sat Sep 18, 2021 4:01 pm, edited 1 time in total.
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Re: When to gift money to kids -- sooner the better?

Post by KlangFool »

Broken Man 1999 wrote: Sat Sep 18, 2021 2:15 pm
As parents we all have had at least 18 years or so to observe our children and their character/ambition/initiative.
Broken Man 1999,

Unless the kids have some experience managing their own money, how would they or us know whether they can manage X sum of money?

In my family/culture, the kids are given CASH since they were born. In my family, they are free to choose what they do with their money. My kids have about 20K to 30K worth of savings/investment when they graduated college. This is from their savings/investment of 20+ years.

So, I know how my kids manage 20K to 30K worth of their money. They learned this starting from 10 to 100 to 1000 since they were born.

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Re: When to gift money to kids -- sooner the better?

Post by TomatoTomahto »

We gift $30k annually to each of 4 kids. One is via a Crummey Trust, but hope springs eternal that he will mature financially (he’s early 20s, so there’s still time). The others use the money as they see fit; it’s not life altering, but two invest it and one uses it to (partially) fund his graduate degree.
I get the FI part but not the RE part of FIRE.
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Re: When to gift money to kids -- sooner the better?

Post by KlangFool »

Lee_WSP wrote: Sat Sep 18, 2021 3:57 pm
KlangFool wrote: Sat Sep 18, 2021 3:54 pm
Lee_WSP wrote: Sat Sep 18, 2021 3:44 pm
If you have the means and your children can use it, give it to them now, it's unlikely to turn them into something they aren't already.
Lee_WSP,

Even if it does, OP can do something about this while he is alive.

It is NOT all or none. Give some and see how they handle it. It is a test.

KlangFool
In my experience, it doesn't change them; it just makes what was already there obvious to the parent.
Lee_WSP,

I disagreed. This is from my family history of a few hundred years. I am from a multi-generation business family. It takes experience and training to learn how to manage money. We do not believe that we should leave this to nature/chance.

<<In my experience, it doesn't change them; >.

The goal is not to change them. The goal is to make sure that they have sufficient money management skill in order to survive.

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Re: When to gift money to kids -- sooner the better?

Post by Grt2bOutdoors »

cchrissyy wrote: Sat Sep 18, 2021 12:51 pm
ThankYouJack wrote: Fri Sep 17, 2021 1:09 pm What if you start gifting up to the annual gift tax exclusion when your child is 0, for 35+ years? I'm guessing the fees of the Trust could add up, but maybe tax savings would outweigh the fees?
Why do you think this needs a trust?

you can open a custodial bank or brokerage account in each kid's name
once they have earned income as teens, you can also fund a custodial roth ira
once they are adults, they manage their own brokerage and ira but you can continue making annual gifts

to me, that covers 0 to 35+ just fine
Think back to when you were 18, if a friend asked you for a loan of $10k and you had $100k in your brokerage account, what would 18 year old “you” do? Now let’s say it’s your girl “friend” or your boy “friend” who asks you for the money? But then they never pay you back. Lesson learned right? Hang with the wrong crowd and you’ll likely learn more than a few lessons. The trust puts a “wall” between them, you and the assets.
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Re: When to gift money to kids -- sooner the better?

Post by smitcat »

KlangFool wrote: Sat Sep 18, 2021 4:04 pm
Lee_WSP wrote: Sat Sep 18, 2021 3:57 pm
KlangFool wrote: Sat Sep 18, 2021 3:54 pm
Lee_WSP wrote: Sat Sep 18, 2021 3:44 pm
If you have the means and your children can use it, give it to them now, it's unlikely to turn them into something they aren't already.
Lee_WSP,

Even if it does, OP can do something about this while he is alive.

It is NOT all or none. Give some and see how they handle it. It is a test.

KlangFool
In my experience, it doesn't change them; it just makes what was already there obvious to the parent.
Lee_WSP,

I disagreed. This is from my family history of a few hundred years. I am from a multi-generation business family. It takes experience and training to learn how to manage money. We do not believe that we should leave this to nature/chance.

<<In my experience, it doesn't change them; >.

The goal is not to change them. The goal is to make sure that they have sufficient money management skill in order to survive.

KlangFool
Our kid was 'trained' very early - its not a problem at all for her.
Her traits are pretty easy to see over these months and years - no need to worry about family history or mutigenerational business skills.
The goal is to make sure she/he has all the tools and that he/she does his or her best and has fun along the way.
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Re: When to gift money to kids -- sooner the better?

Post by Grt2bOutdoors »

TomatoTomahto wrote: Sat Sep 18, 2021 4:03 pm We gift $30k annually to each of 4 kids. One is via a Crummey Trust, but hope springs eternal that he will mature financially (he’s early 20s, so there’s still time). The others use the money as they see fit; it’s not life altering, but two invest it and one uses it to (partially) fund his graduate degree.
What ages did you start making the gifts?
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Re: When to gift money to kids -- sooner the better?

Post by TomatoTomahto »

Grt2bOutdoors wrote: Sat Sep 18, 2021 4:09 pm
TomatoTomahto wrote: Sat Sep 18, 2021 4:03 pm We gift $30k annually to each of 4 kids. One is via a Crummey Trust, but hope springs eternal that he will mature financially (he’s early 20s, so there’s still time). The others use the money as they see fit; it’s not life altering, but two invest it and one uses it to (partially) fund his graduate degree.
What ages did you start making the gifts?
Iirc, the youngest was 20 and the oldest was late 30s when we began gifting cash to the annual limit. We had previously gifted informally (cars , cell phones, etc.).
I get the FI part but not the RE part of FIRE.
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Re: When to gift money to kids -- sooner the better?

Post by sailaway »

TomatoTomahto wrote: Sat Sep 18, 2021 4:16 pm
Grt2bOutdoors wrote: Sat Sep 18, 2021 4:09 pm
TomatoTomahto wrote: Sat Sep 18, 2021 4:03 pm We gift $30k annually to each of 4 kids. One is via a Crummey Trust, but hope springs eternal that he will mature financially (he’s early 20s, so there’s still time). The others use the money as they see fit; it’s not life altering, but two invest it and one uses it to (partially) fund his graduate degree.
What ages did you start making the gifts?
Iirc, the youngest was 20 and the oldest was late 30s when we began gifting cash to the annual limit. We had previously gifted informally (cars , cell phones, etc.).
I would absolutely have considered $30k a year life altering when I was single, darn impressive now even though we would have saved it all if it had been coming in. I know that three of our four siblings would consider life altering. The fourth would probably have donated it, so it would have been life altering for someone else.

It may seem measly here in Lake Woebegone, but $30k is nearly half the average household income.
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Re: When to gift money to kids -- sooner the better?

Post by Lee_WSP »

KlangFool wrote: Sat Sep 18, 2021 4:04 pm
Lee_WSP wrote: Sat Sep 18, 2021 3:57 pm
KlangFool wrote: Sat Sep 18, 2021 3:54 pm
Lee_WSP wrote: Sat Sep 18, 2021 3:44 pm
If you have the means and your children can use it, give it to them now, it's unlikely to turn them into something they aren't already.
Lee_WSP,

Even if it does, OP can do something about this while he is alive.

It is NOT all or none. Give some and see how they handle it. It is a test.

KlangFool
In my experience, it doesn't change them; it just makes what was already there obvious to the parent.
Lee_WSP,

I disagreed. This is from my family history of a few hundred years. I am from a multi-generation business family. It takes experience and training to learn how to manage money. We do not believe that we should leave this to nature/chance.

<<In my experience, it doesn't change them; >.

The goal is not to change them. The goal is to make sure that they have sufficient money management skill in order to survive.

KlangFool
I think we're talking past each other. Either way it is an opinion and ultimately a personal choice.
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Re: When to gift money to kids -- sooner the better?

Post by Grt2bOutdoors »

sailaway wrote: Sat Sep 18, 2021 4:26 pm
TomatoTomahto wrote: Sat Sep 18, 2021 4:16 pm
Grt2bOutdoors wrote: Sat Sep 18, 2021 4:09 pm
TomatoTomahto wrote: Sat Sep 18, 2021 4:03 pm We gift $30k annually to each of 4 kids. One is via a Crummey Trust, but hope springs eternal that he will mature financially (he’s early 20s, so there’s still time). The others use the money as they see fit; it’s not life altering, but two invest it and one uses it to (partially) fund his graduate degree.
What ages did you start making the gifts?
Iirc, the youngest was 20 and the oldest was late 30s when we began gifting cash to the annual limit. We had previously gifted informally (cars , cell phones, etc.).
I would absolutely have considered $30k a year life altering when I was single, darn impressive now even though we would have saved it all if it had been coming in. I know that three of our four siblings would consider life altering. The fourth would probably have donated it, so it would have been life altering for someone else.

It may seem measly here in Lake Woebegone, but $30k is nearly half the average household income.
Agree it’s a significant and generous gift. It’s by no means measly in most people’s dictionary. There are only a few folks in my own family who’ve received larger gifts but those were more “one off” as opposed to annual ones. As for it being nearly half, in actuality it’s more than half because the annual gift is usually free of taxes. It’s likely close to 60 percent of take-home pay! That would have been a significant boost to many bottom lines.
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Re: When to gift money to kids -- sooner the better?

Post by ClevrChico »

I received some small grandparent inheritances that would have been much better as gifts when I was in college. It would have meant less after school work, probably better grades, more reliable transportation, and less debt.

Receiving it in my 30's and 40's meant it just went into my brokerage.

I'd say the best time is when it's needed. Maybe that's college, first house purchase, or helping with grandkid expenses.
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Re: When to gift money to kids -- sooner the better?

Post by TomatoTomahto »

sailaway wrote: Sat Sep 18, 2021 4:26 pm I would absolutely have considered $30k a year life altering when I was single, darn impressive now even though we would have saved it all if it had been coming in. I know that three of our four siblings would consider life altering. The fourth would probably have donated it, so it would have been life altering for someone else.

It may seem measly here in Lake Woebegone, but $30k is nearly half the average household income.
It’s interesting. As I mentioned, one is in a Crummey Trust and might be needed down the road if that child doesn’t mature sufficiently. For another, it’s life changing in that he would otherwise not have been able to finish college or attend graduate school (he was a late starter, what is now referred to as a non-traditional student). Another will probably use the funds to adopt a child, so life-changing. The 4th child makes silly amounts of money and banks the gifts; we feel strongly about treating the children equally and not punishing success, otherwise would not gift to him.
I get the FI part but not the RE part of FIRE.
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Re: When to gift money to kids -- sooner the better?

Post by afan »

We have been doing annual exclusion gifts since our kids were born. They were not aware of the money as children. As young adults they left it to us to manage. Now they manage the accumulated funds themselves. They look on it as retirement, education for their kids or house down payment money. The only one who has bought a house so far did not touch it, using only money they had saved. We are probably going to fund irrevocable trusts to get the money and future growth out of our estates.

We are not worried about the money ruining them. People talk about this constantly but I see no evidence that people who grow up in comfortable surroundings and inherit money do worse on average than those who do not. Quite the reverse, in fact. For example, physicians- who have to work hard through high school and college just to get in to med school- the average parental income is far above the national mean.

Of course most self made rich people grew up in families with lesser means. Almost everyone has lesser means than the more wealthy households. The real question is whether those who grow up with advantages do worse than those who do not. Growing up comfortable and having your education paid for make you more likely to succeed. Not less.
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Re: When to gift money to kids -- sooner the better?

Post by LilyFleur »

theplayer11 wrote: Sat Sep 18, 2021 2:35 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
curious on why you added graduate degree or even undergraduate. Many people work extremely hard without a college degree.
Because I feel like they are working hard to live up to their potential. I always told my son if he wanted to go to community college and learn a trade, I thought that would be great. I support their dreams and how they want to work hard to make their way in this world. One is in business, and one is well on their way to being a medical professional. Their dreams, not my dreams for them. My dream for them is that they make their own choices and live up to them.
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Re: When to gift money to kids -- sooner the better?

Post by theplayer11 »

LilyFleur wrote: Sat Sep 18, 2021 5:48 pm
theplayer11 wrote: Sat Sep 18, 2021 2:35 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
curious on why you added graduate degree or even undergraduate. Many people work extremely hard without a college degree.
Because I feel like they are working hard to live up to their potential. I always told my son if he wanted to go to community college and learn a trade, I thought that would be great. I support their dreams and how they want to work hard to make their way in this world. One is in business, and one is well on their way to being a medical professional. Their dreams, not my dreams for them. My dream for them is that they make their own choices and live up to them.
I see, you are talking about your own children. The way it was worded, I took it as children in general.
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Re: When to gift money to kids -- sooner the better?

Post by LilyFleur »

theplayer11 wrote: Sat Sep 18, 2021 6:12 pm
LilyFleur wrote: Sat Sep 18, 2021 5:48 pm
theplayer11 wrote: Sat Sep 18, 2021 2:35 pm
LilyFleur wrote: Sat Sep 18, 2021 1:10 pm
Will do good wrote: Sat Sep 18, 2021 1:00 pm My fear is removing their ambition at an early age. I know of few friends with family money and all of them are not doing so well at 50's-60's. They got used to spending others money and savings is an unknown word for them. Their family money is running out at the worst time.
There are many ways to help children financially without making them chronically dependent. For example, if children do their part, work hard to get undergraduate and graduate degrees, and are working hard in their jobs, I don't have a problem with helping on a house (not buying outright, but helping on a downpayment).
curious on why you added graduate degree or even undergraduate. Many people work extremely hard without a college degree.
Because I feel like they are working hard to live up to their potential. I always told my son if he wanted to go to community college and learn a trade, I thought that would be great. I support their dreams and how they want to work hard to make their way in this world. One is in business, and one is well on their way to being a medical professional. Their dreams, not my dreams for them. My dream for them is that they make their own choices and live up to them.
I see, you are talking about your own children. The way it was worded, I took it as children in general.
Just about my own children.

I think some of the hardest-working people are the lowest paid. My parents picked cotton as children. Now, that is a VERY hard job. My dad had to use his earnings to buy overalls to wear to elementary school.
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Re: When to gift money to kids -- sooner the better?

Post by RadAudit »

Why does contributing to a taxable account allow you to equalize annual distributions while contributing to 529 plans doesn’t?
delamer,

One of the kids has two children. The other does not have either children or a spouse, right now. If I set up a 529 for the first two grandchildren, one grandchild will have at least 10 years before he starts to withdraw funds which have been compounding in a tax sheltered account. The second grandchild has 14 years before withdrawing funds.

While I can't figure out how much money that'll equal, I'm sure the other one of the kids will figure it out to the penny and conclude who won the grandkids lottery and by how much. I don't want either kid standing over my grave and yelling obscenities - might disturb the neighbors. If I distribute cash directly, I know how much I gave to each one.

OTOH, I probably messed up in the calculations already.
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Re: When to gift money to kids -- sooner the better?

Post by cchrissyy »

Grt2bOutdoors wrote: Sat Sep 18, 2021 4:07 pm
cchrissyy wrote: Sat Sep 18, 2021 12:51 pm
ThankYouJack wrote: Fri Sep 17, 2021 1:09 pm What if you start gifting up to the annual gift tax exclusion when your child is 0, for 35+ years? I'm guessing the fees of the Trust could add up, but maybe tax savings would outweigh the fees?
Why do you think this needs a trust?

you can open a custodial bank or brokerage account in each kid's name
once they have earned income as teens, you can also fund a custodial roth ira
once they are adults, they manage their own brokerage and ira but you can continue making annual gifts

to me, that covers 0 to 35+ just fine
Think back to when you were 18, if a friend asked you for a loan of $10k and you had $100k in your brokerage account, what would 18 year old “you” do? Now let’s say it’s your girl “friend” or your boy “friend” who asks you for the money? But then they never pay you back. Lesson learned right? Hang with the wrong crowd and you’ll likely learn more than a few lessons. The trust puts a “wall” between them, you and the assets.
well, everybody is different so it probably doesn't matter much what I personally would have done. but for the record, my attitude was more like "i am on my own in this world and this is all the money I have". so no way would i have lent it out. i was a regular on the Motley Fool LBYM forums from my freshman dorm room and opened a Roth IRA when they were first invented. $2000, i think.

people of all ages fall prey to friends who need money. do you think 40-somethings or 60-somethings don't have girlfriends? or buddies with a business idea or a loan request from their cash crunch? honestly, i worry about this for elderly folks who could be targeted by an in-home helper or a new romantic partner in old age! even myself, you know? how do you protect against your own weakening judgement?

but all that said, I agree with Klangfool, that young people learn to manage money by having money to manage, and by talking with them about it on an ongoing basis.

if my alternatives are giving some money to a child which grows into a good bit by their 20s, versus giving a lot of money to a 40-something upon my passing, I would rather be alive to coach a teen or a 20-something through a series of smaller decisions and yes, mistakes, so they are prepared to manage larger amounts when I'm gone.
Last edited by cchrissyy on Sun Sep 19, 2021 12:14 am, edited 1 time in total.
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