Advances on Inheritance
by Bob Poliquin
There are any number of very good reasons to gift money directly to your children or grandchildren. And probably as many good reasons not to. As it is in most families, some family members are responsible money managers and others are equally irresponsible, so there is always that line between helping and enabling. But if you are in the enviable financial position where you can assist without endangering your own financial security, gifting money or property can be a tremendous way to benefit your family when it is most useful to them rather than at the settlement of your estate. Your kids can probably put the money to better use in their 30’s and 40’s than in their 60’s and 70’s.
How much can you give? In 2017, each parent can annually gift up to $14,000 to each child or grandchild without a tax liability to either party. This
includes daughters-in-law or sons-in-law, as well. So, a couple can gift $14,000 x 4 = $56,000 annually to their son and daughter-in-law when they need it most. That makes a great down payment on a house or covers two or more full years of tuition, board, fees, and books at an in-state university for a grandchild.
We all know, sometimes from painful experience, that money has a way of dividing a family. My wife and I, in fact, have decided that we will not lend money to family. We will either give them the money or not give them the money, but we will not lend. There are too many hard feelings when there are money issues between near relatives. On the other hand, we know couples who have lent money to their children to start a business and have become partners in the business at least for loan purposes, which is quite different than just gifting money.
Every family’s financial situation is different, and everyone’s needs are different as well. Thereis a big difference between helping out with a home purchaseor college and paying off credit cards when you know they will just max out the cards again. Sometimes the spenders need to dig themselves out of a hole to learn the lesson. And most of us have been in that hole at some point in life. It felt awful, but we did it to ourselves.
There are also reasons to bypass the parents and go straight to the grandchildren. Honestly, I can’t see spending a small fortune on a wedding or a car, but I can see investing in a college education or a down payment for a house–things that have long-term, multi-generational value.
Again, every family’s financial situation is different, and everyone’s needs are different as well. One of my friends changed his will because he has some kids who really don’t need the money and others who have chosen lives of service that don’t pay very much. All good children, just with different needs. Like I said, every situation has to stand on its own merits. That’s where our years and wisdom come in. We have earned our gray hair.
Please feel free to email me at email@example.com with your suggestions on how seniors can help their heirs in responsible ways. And, with your permission, we will share your best ideas with our readers. For more information, please refer to the IRS.gov frequently asked questions page on gift taxes. As with anything financial, if you are not sure about the tax requirements, consult a tax specialist. Again, take a look at your assets and, if you are financially secure beyond what you might reasonably need, consider gifting money to your heirs at a time in their lives when they can use it most.