Several years ago, a new theme emerged in our wealth advisory firm’s meetings with clients. They were beginning to truly worry about their children’s financial futures.
Increasingly, we’ve been asked to help them find ways to assist their kids now, rather than waiting to leave them money and assets in their wills. The parents in their 50s and 60s want to be here to watch and enjoy seeing the ways their children will benefit from their generosity.
If you find yourself thinking along these lines, you are not alone.
Smart Gifting Ideas Plus Some Warnings
Below are some smart planning ideas you can employ to make financial gifts to your adult children and a little cautionary advice.
I encourage you to work with a professional team of advisers, including a certified financial planner, a tax professional and an estate planning attorney.
A great gifting plan involves many moving parts: everything from projecting your lifetime cash flow needs, to analyzing what you paid for the assets you might bestow or sell, to considering the most appropriate tax moves.
Keep in mind that this year parents can give each of their children up to $14,000 ($28,000 for a married couple) without incurring a gift tax. If you wish to hand over more than that, you’ll want to discuss it with your financial advisers due to the complexity of the tax rules.
Sometimes parents prefer to give their grown children cash because it's the cleanest, simplest and certainly the most obvious thing to do.
But if you own stock that you bought at a much lower price than its current value, a great planning idea is to give the stock to your adult children rather than cash.
(MORE: Keep Control of Assets After Death)
Your kids can then either keep or sell the stock. When they do sell it, they’ll pay taxes on the gain based on the amount you paid for it (what’s known as your basis). And if they’re in a lower tax bracket than you are at the time, this will be a win-win strategy, resulting in your family keeping more of the profit by paying less in taxes on the stock sale.
Give Your Kids High-Dividend Stocks
Another great gifting strategy for parents is to give their children stock that has not only appreciated a lot in value but also pays a high dividend.
If you’re in a high tax bracket, gifting this type of stock not only keeps you from having to pay taxes on the gain but also transfers the taxable dividend stream to your kids. Your children might really benefit from that dividend income and may decide to keep the stock for that reason.
It’s important to note that both of these strategies are best used with adult children since they won’t be subject to the “kiddie” tax.
Watch Out for the 'Kiddie' Tax