As parents, we strive to provide for our children and support them on their journey to independence. One aspect of this support often involves the question of gifting money to our adult children. It's a topic that stirs up a range of emotions and considerations, from a desire to help them succeed to concerns about fostering dependency. Navigating the complexities of financial support can be challenging, and it requires thoughtful evaluation to strike a balance between generosity and responsible parenting.
In this article, I’ll delve into the art of gifting money to adult children, exploring the factors to consider before making this decision. Whether you're contemplating this step or simply curious about the dynamics of parent-child financial relationships, this article aims to provide valuable insights and guidance.
Let's take a closer look.
Pros:
Control: When you gift money to your adult children, you may still be able to influence how the money is used. You can set conditions on the gift, such as using it for education or a down payment on a home.
Tax Benefits: Gifts made during your lifetime can reduce your estate tax liability, which can be especially beneficial if you have a large estate. There is no limit on the amount of money you may gift.
Emotional Benefits: Giving money to your adult children can provide emotional benefits, as it allows you to see the impact of your generosity and help your loved ones achieve their goals.
Cons:
Loss of Control: Once you gift money to your adult children, you no longer have direct control over how the money is used. If your children use the money for something you don't approve of, there's nothing you can do about it.
Potential Tax Implications: While there are tax benefits to gifting money during your lifetime, there can also be tax implications for you and your adult children. For example, if you gift marketable securities, you will trigger capital gains taxes assuming the assets have appreciated. Your adult children will assume a cost basis at the prevailing market price, which could result in a future tax bill when they sell the assets if they have risen in value.
Unequal Treatment: If you have multiple children, gifting money to just one could create feelings of resentment and cause family conflict.
Alternatives:
If you're hesitant to gift money to your adult children, there are alternatives to consider. One option is to loan them money instead of giving it to them. You can set the terms of the loan, including the interest rate and repayment schedule, and your children will have an incentive to repay the loan. Another option is to set up a trust for your adult children, which can provide ongoing financial support while still allowing you to retain control over the assets.
Final thought
Gifting money to adult children can be a great way to help them financially while you're alive, but it's important to weigh the pros and cons before making a decision. Additionally, it's always a good idea to speak with a good wealth advisor or tax professional to understand any potential tax implications and explore other options that may be better suited to your individual circumstances.
