Author Topic: How much are you planning to give kids?  (Read 3161 times)

whywork

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How much are you planning to give kids?
« on: August 12, 2018, 01:16:03 PM »
I have been thinking a lot about this question recently. Is giving kids inheritance a good thing? How much is ideal?

+ves of giving inheritance:

- Most of us are here wanting FI as we miss our freedom and our time being tied to a 9-5 desk job. By giving kids inheritance we can essentially free them (fully or partially) and give them this joy of independence
- If they like doing job then this excess money can help them buy a home early and help them lead a more comfortable life
- They may run into situations in life where they really in need of money (medical or others) and don't have it. By having the extra money, we can really help them

-ves of giving inheritance:

- Even though parts of life are painful, going through the pain and having to earn our livelihood makes us stronger and more confident in ourselves. Inheritance will not let them learn these valuable lessons. This can be offset by letting them work hard and go through the pain till mid 30s and then giving them the money where they need
- We work extra hard for saving up to give them and they may not even need it or spend it for luxuries

My plan is this:

- Pay for their college while asking them to work part time for 4-8 hours a week to learn the value of work
- Don't tell about any inheritance and let them find their job and work hard through the initial years. Teach them MMM principles and let them save hard till mid 30s where they are mostly financially independent
- Keep whatever is necessary for me and my wife's survival and distribute them extra amount as inheritance once they are mid30s

I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.

What are your plans and how much (if anything) do you plan to give kids?

CindyBS

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Re: How much are you planning to give kids?
« Reply #1 on: August 12, 2018, 06:56:24 PM »
We're leaving it all to our kids when we die.

Kid #1 is disabled and at a significantly higher risk of getting cancer, heart disease, stroke, etc. as an adult.

Kid #2 is able-bodied, but since Kid #2 may be taking care of kid#1 after I'm gone, I have no problem giving him money either. 

We are giving them both a medium sized "start of life" fund to be used for limited expenses that we approve of - not for slacking off, drinking beer, etc.  Things like: college, job training, a car, down payment for a first apartment, etc.  They will not get a free ride in college and will need to do college credits in high school (ideally) or some cheaper community college.   My guys are teens and have already been told they are expected to move out by age 23 at the latest.

The problem with not leaving an inheritance because someone thinks their kid will be lazy without it is what if the reason they can't work is something beyond their control.   Anyone can become sick or disabled at any time. 

AccidentalMiser

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Re: How much are you planning to give kids?
« Reply #2 on: August 12, 2018, 07:01:31 PM »
We're leaving it all to our kids when we die.

Kid #1 is disabled and at a significantly higher risk of getting cancer, heart disease, stroke, etc. as an adult.

Kid #2 is able-bodied, but since Kid #2 may be taking care of kid#1 after I'm gone, I have no problem giving him money either. 

We are giving them both a medium sized "start of life" fund to be used for limited expenses that we approve of - not for slacking off, drinking beer, etc.  Things like: college, job training, a car, down payment for a first apartment, etc.  They will not get a free ride in college and will need to do college credits in high school (ideally) or some cheaper community college.   My guys are teens and have already been told they are expected to move out by age 23 at the latest.

The problem with not leaving an inheritance because someone thinks their kid will be lazy without it is what if the reason they can't work is something beyond their control.   Anyone can become sick or disabled at any time.

This is very noble.  I like the way you think about this. 

MayDay

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Re: How much are you planning to give kids?
« Reply #3 on: August 13, 2018, 09:14:28 AM »
The issue I see is that depending on your ages, your kids may be retirement age when you die.

My grandpa is fairly well off. He is kicking at 84. My mom is 59- she didn't see any of his money when she had little kids and was paying childcare, trying to pay off student loans, buying a house, etc. Sure the money will be nice for her retirement, but at this point she and my dad have a healthy retirement savings of their own.

Meanwhile, most of his grandkids are now pretty financially stable- most of us are homeowners, have kids, have stable careers, etc. It may be his great grandkids who are in the cash-poor stage of their lives when he finally dies!

Now that's not necessarily bad- probably builds character to struggle through your 20's :) But I sure wouldn't have minded some financial assistance during the struggle of parenting newborns and toddlers!

Personally I plan to partially fund college, and then if my kids have kids, kick in decent money either to grandkids college funds, or to assist with childcare.

We do plan to potentially set aside money for our autistic child who will need extra support. As a PP mentioned we may similarly be gift his sister who will likely look out for him to some degree. But I assume by the time we die, they'll be past the point of needing our money.

mxt0133

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Re: How much are you planning to give kids?
« Reply #4 on: August 13, 2018, 10:24:49 AM »
At the moment our inheritance for our children is to not be a burden to them in our old age.  We want to ensure we have the means to not have to depend on our children until we pass.  From there our goal is to have as close to zero assets at the time of our death.  We want to be able to help our kids if necessary as they transition into adulthood.  To me this doesn't mean doling out cash but being able to visit/move to where ever they end up and provide childcare if they need it.

I do not want to deny them the satisfaction of achieving FI if that is their goal.

reeshau

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Re: How much are you planning to give kids?
« Reply #5 on: August 13, 2018, 11:47:40 AM »
"Enough money so that they would feel they can do anything, but not so much that they could do nothing."
-- Warren Buffett

Now, I have nowhere near that amount of money, but I like the philosophy.  We have coordinated college funding with my son's grandparents, so we don't end up over-doing it.  He's 3 now, so our thinking is very generic.  Should he start to have...issues...we would rethink how we give. (i.e. a trust, with him not the trustee)  But I have no problem taking care of life's big hurdles for him, if like now he is self-motivated to explore the world.

We will see.

onlykelsey

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Re: How much are you planning to give kids?
« Reply #6 on: August 13, 2018, 11:56:16 AM »
If I pass away once my kid is an adult, I don't plan on leaving my kid anything when I pass away except for maybe nostalgic items. Obviously if he develops a health problem or has children with health problems, I may think differently.  My kid is only a toddler, but I've felt this way consistently since I was a teenager, so I don't think I'll change in views much at this point. 

My big reasons are:
  • I think intergenerational wealth transfers contribute in a huge way to inequality.  As a policy matter I am in favor of higher estate taxes (over some cap, obviously).
  • My religious group (Friends) tends away from wealth transfers like this.
  • Going to an elite private university, I saw a LOT of kids from wealthy families, and their entitlement to their parents' wealth I don't think did the kids or broader society any service.  There were certainly exceptions to the rule, but I'd rather instill my kid with a sense of noblesse oblige and set up bequests to charity.

I do think it's unfair to become a burden on your kids (barring some unforeseen circumstance or accident), though, so I am certainly setting aside enough to hopefully never look to him for help.

FIRE@50

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Re: How much are you planning to give kids?
« Reply #7 on: August 13, 2018, 11:58:59 AM »
My child will inherit whatever is leftover after the 4% rule plays itself out. I don't have any plans beyond that.

ToeInTheWater

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Re: How much are you planning to give kids?
« Reply #8 on: August 13, 2018, 12:06:03 PM »

I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes. 


PharmaStache

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Re: How much are you planning to give kids?
« Reply #9 on: August 13, 2018, 12:41:40 PM »
The issue I see is that depending on your ages, your kids may be retirement age when you die.

My grandpa is fairly well off. He is kicking at 84. My mom is 59- she didn't see any of his money when she had little kids and was paying childcare, trying to pay off student loans, buying a house, etc. Sure the money will be nice for her retirement, but at this point she and my dad have a healthy retirement savings of their own.

Meanwhile, most of his grandkids are now pretty financially stable- most of us are homeowners, have kids, have stable careers, etc. It may be his great grandkids who are in the cash-poor stage of their lives when he finally dies!

Now that's not necessarily bad- probably builds character to struggle through your 20's :) But I sure wouldn't have minded some financial assistance during the struggle of parenting newborns and toddlers!

Personally I plan to partially fund college, and then if my kids have kids, kick in decent money either to grandkids college funds, or to assist with childcare.

We do plan to potentially set aside money for our autistic child who will need extra support. As a PP mentioned we may similarly be gift his sister who will likely look out for him to some degree. But I assume by the time we die, they'll be past the point of needing our money.

I agree with this.  I could easily be 70 years old by the time my last parent passes away.  What do I need a million dollars for at that point?  I would NEVER assume or plan for an inheritance so it doesn't play into my plans at all, yet it will likely still happen.  Am I supposed to keep it for my kids (who could be around 70 as well when I die)?  Seems pointless. 

whywork

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Re: How much are you planning to give kids?
« Reply #10 on: August 13, 2018, 07:50:02 PM »

I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes.

Thanks, I wasn't aware of that

reeshau

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Re: How much are you planning to give kids?
« Reply #11 on: August 14, 2018, 12:13:12 AM »

I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes.

Thanks, I wasn't aware of that

There are two things you can do to solve this issue.  The gift tax does allow $15k per year, each, for you and your spouse.  And if your child has a spouse too, that's another 2x.  So, you could transfer $60k to them per year, tax free.

Addressing the other issue on this thread, about the age they will receive being too old to be useful:  talk to your parents.  If you are set yourself, and would be passing money down, then if your parents are well enough off to be passing down money, make it clear that you wish you children to receive some of that.  This is one way I resolved coordinating college funding for my son.
« Last Edit: August 14, 2018, 06:23:12 AM by reeshau »

elliha

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Re: How much are you planning to give kids?
« Reply #12 on: August 14, 2018, 02:51:44 AM »
I hope to give my children a small emergency fund when they have finished high school that they can use starting their adult life. They may blow it all on things I think is crap but this is partly to help them and partly a test if I have managed to teach them some of what I want to teach them. My hope is that they use it at least mostly for sensible things. Tuition here is free so that is not a concern and even if it would change I would still not be able to pay for that so they would need to take out a loan or work in that case so I just hope that doesn't change. We live in a university town and don't expect to move so if we are still living here I will let the kids live at home if they want to study at the university. If they work a lot part time or take out loans for living expenses I will ask them to pay me for their food or they can get their own shelf and buy their own food but they can live here rent free. If things are the same as now they could apply for a grant from the government that could cover the costs of books and very frugal spending money.

I am not wealthy and will mostly never be and I will not have the problem of having tons of money that may fuck up my children's life. When I die they get whatever I may have left after the funeral was paid and I am sure that it is not going to be anything above allowing them to go on a fancy holiday or rebuild their kitchen and that is me making a very generous estimate. So what ever they get will not make a difference really.

WSUCoug1994

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Re: How much are you planning to give kids?
« Reply #13 on: August 14, 2018, 05:57:50 PM »
We will fund college up to $200K for each child - with some work requirements and performance thresholds.  When we die - our trustee is being asked to provide money for education/health until they are 35 - then they split whatever is left.  This is a massive oversimplification but you get the outcome.

ZMonet

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Re: How much are you planning to give kids?
« Reply #14 on: August 15, 2018, 01:32:05 PM »

I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes.

Thanks, I wasn't aware of that

I'd love it if someone could clear up for me whether you actually pay immediate (in that year) taxes on gifts over $15k/year, or is it just that if you give over $15k you have to file with the IRS so that it can be counted against your lifetime gift of $5.6 million?  My reading is that it is the latter, but I see so many people so concerned about not exceeding the gift limits.  If all you have to do is file a piece of paper with the IRS and it counts against $5.6 million ($11.2 million for a couple) then why do people care so much if they exceed the $15k/year?

And, on the topic of this thread, we plan to give our child an inheritance of whatever is left when we pass.  We'll also, hopefully, be able to help at key moments...I think it is very individual to the child though.  Ours seems wired such that it won't spoil the child, but I've certainly seen many instances where having too much hurt more than it helped.

marion10

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Re: How much are you planning to give kids?
« Reply #15 on: August 15, 2018, 02:46:10 PM »
Not worrying about it. We paid 100% of their undergraduate education, so no student loans. Once they started working in college, we began to fund a Roth IRA for them. We give then about $2000 a year at Christmas to add to their IRA or savings. (I think both have maxed out 401k at work). Most of our assets, if any, will go to them, but there will probably be charitable bequests as well.

marcela

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Re: How much are you planning to give kids?
« Reply #16 on: August 15, 2018, 03:07:15 PM »

I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes.

Thanks, I wasn't aware of that

I'd love it if someone could clear up for me whether you actually pay immediate (in that year) taxes on gifts over $15k/year, or is it just that if you give over $15k you have to file with the IRS so that it can be counted against your lifetime gift of $5.6 million?  My reading is that it is the latter, but I see so many people so concerned about not exceeding the gift limits.  If all you have to do is file a piece of paper with the IRS and it counts against $5.6 million ($11.2 million for a couple) then why do people care so much if they exceed the $15k/year?

And, on the topic of this thread, we plan to give our child an inheritance of whatever is left when we pass.  We'll also, hopefully, be able to help at key moments...I think it is very individual to the child though.  Ours seems wired such that it won't spoil the child, but I've certainly seen many instances where having too much hurt more than it helped.

The donor pays the gift tax by the filing date of the following year. Gift taxes aren't levied on moneies given for school tuition. Also the 2018 tax law doubled the lifetime giving exemption to $11.2M for an individual, $22.4 M for a married couple.

reeshau

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Re: How much are you planning to give kids?
« Reply #17 on: August 15, 2018, 03:35:16 PM »

The donor pays the gift tax by the filing date of the following year. Gift taxes aren't levied on moneies given for school tuition. Also the 2018 tax law doubled the lifetime giving exemption to $11.2M for an individual, $22.4 M for a married couple.

Just to be clear, contributions to 529's are subject to the annual gift tax ceiling.  But, they do have an exception that allows you to combine up to 5 year's donation at one time.  This will still take 5 year's worth of gift tax allowance, but you can put it to work right away.

To marcela's point, if you paid the school's tuition directly, say out of a taxable account or money market, that is not subject to gift tax. (and, of course, when you actually pay out of a 529 for this purpose, too)  But contributing to a 529 is subject to it.

onlykelsey

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Re: How much are you planning to give kids?
« Reply #18 on: August 15, 2018, 03:52:00 PM »
Just to be clear, contributions to 529's are subject to the annual gift tax ceiling.  But, they do have an exception that allows you to combine up to 5 year's donation at one time.  This will still take 5 year's worth of gift tax allowance, but you can put it to work right away.


Rules like this always make wonder about who put them in to place and why.  It seems like a very specific fact pattern they were trying to address... and it doesn't appear to be a fact pattern most Americans would have.  Maybe I'll look up the congressional or rulemaking history.

ZMonet

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Re: How much are you planning to give kids?
« Reply #19 on: August 15, 2018, 04:00:33 PM »

[/quote]

The donor pays the gift tax by the filing date of the following year. Gift taxes aren't levied on moneies given for school tuition. Also the 2018 tax law doubled the lifetime giving exemption to $11.2M for an individual, $22.4 M for a married couple.
[/quote]

Is it that the donor pays the gift tax by the filing date of the following year or that they file Form 709 indicating that they gave a gift over $15k so that it can be counted against their lifetime exemption?  My reading is that you can just file the form and the excess counts against your lifetime $5+ million exclusion that most of us don't have to worry about.  If that is the case, people are worrying about gift taxes unnecessarily, aside from the inconvenience of filing a form.

See this from the IRS:  https://www.irs.com/articles/7-things-you-should-know-about-gift-tax

6. Each Donor Has a Lifetime Exemption

This refers to the total amount that an individual can give away during their entire lifetime. If your gift exceeds the $14,000 annual threshold, it must be reported as a taxable gift on Form 709 — however, that doesn’t necessarily mean you’ll have to pay the gift tax. Instead, you can apply the gift towards your lifetime exclusion from the Federal estate tax.

The “basic exclusion” (also known as the “unified credit”) represents both the lifetime gift tax exemption and the estate tax exclusion, signified as a total amount of $5.34 million. The current law allows individuals to give away up to $5.34 million over their lifetime without having to pay gift or estate taxes.

But keep in mind; any portion that’s used to avoid the gift tax reduces the amount that will be exempt from estate tax. For example, if you used $2 million of the exemption to make taxable gifts during your lifetime, you will only be able to exclude $3.34 million from the estate tax. If you surpass the $5.34 million limit, you (or your heirs) will have to pay up to 40% tax.

You can give someone $14,000 per year and it won’t affect your lifetime exemption (because gifts below the annual threshold are not considered taxable). If you exceed the $14,000 annual gift tax threshold, you must file Form 709 and report the amount that counts against your lifetime exemption. You should also hold onto any relevant paperwork so your heirs can properly compute the estate tax later.

Irregular Joe

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Re: How much are you planning to give kids?
« Reply #20 on: August 15, 2018, 07:26:49 PM »


I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes.

Thanks, I wasn't aware of that

There are two things you can do to solve this issue.  The gift tax does allow $15k per year, each, for you and your spouse.  And if your child has a spouse too, that's another 2x.  So, you could transfer $60k to them per year, tax free.


That's not how the gift tax works.  You're allowed to give $11.2 million each before you have to pay a penny in additional tax.

If you give more than $15,000 (each), you have to report it to the IRS, so they can reduce the $11.2 million you're allowed to give via inheritance when you die.  But you don't pay taxes on it.

The gift tax exclusion is there so billionaires don't give away $100 million a year, every year while still alive, to get around the inheritance tax.

ZMonet

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Re: How much are you planning to give kids?
« Reply #21 on: August 16, 2018, 06:29:31 AM »
Thanks, Irregular Joe.  I always hear of people going to great lengths to avoid going over the gift yearly maximum and when I read the gift tax rules it didn't make sense as to why they would do it.  I think there are just a lot of people out there that think that you have to immediately pay tax after $15k.  That, or there are a lot of people who think they are going to have estates in the $11 million + range.

onlykelsey

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Re: How much are you planning to give kids?
« Reply #22 on: August 16, 2018, 06:46:18 AM »
That, or there are a lot of people who think they are going to have estates in the $11 million + range.

I think it may be this.  What's that saying about poor Americans thinking they're all potential millionaires?  As a policy matter I support lowering the $11 million, but apparently in 2016 there were only 4,700 families nationally affected by it (or the 5.45 for singles).

marcela

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Re: How much are you planning to give kids?
« Reply #23 on: August 16, 2018, 07:20:21 AM »
Thanks, Irregular Joe.  I always hear of people going to great lengths to avoid going over the gift yearly maximum and when I read the gift tax rules it didn't make sense as to why they would do it.  I think there are just a lot of people out there that think that you have to immediately pay tax after $15k.  That, or there are a lot of people who think they are going to have estates in the $11 million + range.
It's more that people don't realize that the estate tax doesn't kick in unless you have that much money. I've had many arguments with people about the so-called death tax and their fervent belief that it applies to anyone who passes with any amount of property. They think I'm making shit up when I tell them it's now $11M for a single person and $22M for a couple.

onlykelsey

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Re: How much are you planning to give kids?
« Reply #24 on: August 16, 2018, 07:30:13 AM »
Thanks, Irregular Joe.  I always hear of people going to great lengths to avoid going over the gift yearly maximum and when I read the gift tax rules it didn't make sense as to why they would do it.  I think there are just a lot of people out there that think that you have to immediately pay tax after $15k.  That, or there are a lot of people who think they are going to have estates in the $11 million + range.
It's more that people don't realize that the estate tax doesn't kick in unless you have that much money. I've had many arguments with people about the so-called death tax and their fervent belief that it applies to anyone who passes with any amount of property. They think I'm making shit up when I tell them it's now $11M for a single person and $22M for a couple.

Oops I forgot  it went up!

Much Fishing to Do

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Re: How much are you planning to give kids?
« Reply #25 on: August 16, 2018, 11:34:00 AM »
So basically my business succeeding has sent me working past my initial FIRE plans and there is more money than I had thought there would be for them.  So I've basically put the costs of 4 years tuition plus room and board at the flagship state school in 529s for each of them and basically plan on that money being theirs as long as their plans seem reasonable (its $120k each).  So the encouragement of working/finding scholarships/spending less at school is that they can have a nice starting out sum for a downpayment on a house, etc.

As far as inheritance, I'll likely leave most of it to the kids, but I view that as more about stewardship of the family money than a gift as #1 if markets go poorly we'll spend it all anyway, #2 healthcare seems to have a way of taking it all at the end anyway, and #3 odds are one of us will live long enough that the kids will be 60 before they get the money so its not like you're changing their life even if you do die rich.

CCCA

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Re: How much are you planning to give kids?
« Reply #26 on: August 16, 2018, 11:44:42 AM »
I think that regardless of whether you give them money or not, the main thing is to not have them come to expect the money as a way to avoid putting in the hard work of becoming self-sufficient adults and hopefully productive members of society. 


I'm currently struggling with how much to tell our kids (5-10 yrs old) about our financial situation (we have more than enough to FIRE).

J Dough

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Re: How much are you planning to give kids?
« Reply #27 on: August 16, 2018, 11:49:03 AM »


I'm hoping to give them like 500k to 750k each at this point and distribute whatever is left once we die.


ok, not a tax expert, but if you did this as described, i don't think it would be deemed "inheritance," but "a gift" - subject to gift taxes, not inheritance taxes.

Thanks, I wasn't aware of that

There are two things you can do to solve this issue.  The gift tax does allow $15k per year, each, for you and your spouse.  And if your child has a spouse too, that's another 2x.  So, you could transfer $60k to them per year, tax free.


That's not how the gift tax works.  You're allowed to give $11.2 million each before you have to pay a penny in additional tax.

If you give more than $15,000 (each), you have to report it to the IRS, so they can reduce the $11.2 million you're allowed to give via inheritance when you die.  But you don't pay taxes on it.

The gift tax exclusion is there so billionaires don't give away $100 million a year, every year while still alive, to get around the inheritance tax.

This is true, but I think we need to clarify.

If you report a gift of more that $15,000, it reduces the $11.2 million your're allowed to give tax free via inheritance when you die. You can still pass more than $11.2 million through your estate to your heirs when you die, but the portion in excess of the $11.2 million (minus reported gifts) will be subject to estate tax.

doggyfizzle

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Re: How much are you planning to give kids?
« Reply #28 on: August 16, 2018, 12:05:57 PM »
My wife and I have discussed this at length, especially after seeing first-hand (through my deadbeat sister) how financial generosity can be corrupting.  We plan on paying for college (or apprenticeship fees etc), and will help with a down payment on a house and with childcare costs (if our son chooses to have kids) if he has a stable job.  This last part is key for me because I have seen the generosity of my parents turn into co-dependence with my sister, who now hasn't had a real job in almost a decade despite my parents paying for college and beauty school.  She lives rent-free in a place they own, gets a "stipend" of about $2k/month tax free, and only "works" for my parents to house sit when they're out of town.  That shit won't fly with my son, but based on his current personality, I'm not at all worried about him turning into my sister.

We put some money in a brokerage account for him each month that he can use to start a business or begin to roll into a Roth once he starts working.  My goal with the brokerage account is for him to start seeing how his money is working for him, and maybe let him use part of each month's dividend check as allowance when he's younger.  We'll probably do the same thing for grand kids (if we have any).  When we both die, he gets everything and can do what he wants with it.

seattlecyclone

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Re: How much are you planning to give kids?
« Reply #29 on: August 16, 2018, 02:30:57 PM »
Thanks, Irregular Joe.  I always hear of people going to great lengths to avoid going over the gift yearly maximum and when I read the gift tax rules it didn't make sense as to why they would do it.  I think there are just a lot of people out there that think that you have to immediately pay tax after $15k.  That, or there are a lot of people who think they are going to have estates in the $11 million + range.

The key point to understand about the gift tax, which many people don't understand, is that it really only exists to prevent people giving away tons of money before they die in order to make an end run around the estate tax. The $15k annual exemption exists to make sure that "normal" levels of giving between people does not need to be tracked or taxed. The point is not really to tax gifts as such, but to make sure that inheritance-like transfers of wealth are taxed about the same whether they happen before or after death. If you go over the $15k limit, all that happens at first is you have to file some paperwork that reduces the amount exempt from estate tax when you eventually pass away. Only after that limit is exceeded does any actual tax become due.

CindyBS

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Re: How much are you planning to give kids?
« Reply #30 on: August 16, 2018, 04:33:08 PM »
I think that regardless of whether you give them money or not, the main thing is to not have them come to expect the money as a way to avoid putting in the hard work of becoming self-sufficient adults and hopefully productive members of society. 


I'm currently struggling with how much to tell our kids (5-10 yrs old) about our financial situation (we have more than enough to FIRE).

You will probably eventually get the question "Are we rich?" Even if you live a modest lifestyle.   My son that asks me this question a few times a year is a fairly anxious person, so I have the canned response "Compared to most people in the world, we and every single person you know is very rich.   Compared to families at your school, our income is probably more than most, but no where near being what you see in movies or on TV or movies as super rich.  The important thing is that we live below our means and have plenty of money for emergencies (what he is really asking about).  It is very important to live below your means, because you need that cushion if something happens. " 

I've recently had to quit working due to a family emergency and have explained the reason we could afford it is due to living below our means and good financial choices earlier in life.  "Driving an old car or (insert other item he'll understand - wearing used clothings, etc.) has lead to Dad and I to have plenty of money for mom to stop working."  I don't like to say "Don't worry about money we are fine" because it minimizes his concerns and by being upfront with some concrete examples he understands, I can show him why we have the extra money. 

Some people don't want to tell their kids their income or what is what, but for some of the more anxious types, giving information in a general way can provide relief and a sense of security.

CCCA

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Re: How much are you planning to give kids?
« Reply #31 on: August 16, 2018, 06:42:53 PM »
I think that regardless of whether you give them money or not, the main thing is to not have them come to expect the money as a way to avoid putting in the hard work of becoming self-sufficient adults and hopefully productive members of society. 


I'm currently struggling with how much to tell our kids (5-10 yrs old) about our financial situation (we have more than enough to FIRE).

You will probably eventually get the question "Are we rich?" Even if you live a modest lifestyle.   My son that asks me this question a few times a year is a fairly anxious person, so I have the canned response "Compared to most people in the world, we and every single person you know is very rich.   Compared to families at your school, our income is probably more than most, but no where near being what you see in movies or on TV or movies as super rich.  The important thing is that we live below our means and have plenty of money for emergencies (what he is really asking about).  It is very important to live below your means, because you need that cushion if something happens. " 

I've recently had to quit working due to a family emergency and have explained the reason we could afford it is due to living below our means and good financial choices earlier in life.  "Driving an old car or (insert other item he'll understand - wearing used clothings, etc.) has lead to Dad and I to have plenty of money for mom to stop working."  I don't like to say "Don't worry about money we are fine" because it minimizes his concerns and by being upfront with some concrete examples he understands, I can show him why we have the extra money. 

Some people don't want to tell their kids their income or what is what, but for some of the more anxious types, giving information in a general way can provide relief and a sense of security.


Thanks, great reply.  I like the concrete examples in your answer.  I think this will help frame the answers in a constructive way.  We're right in the middle of the income distribution in our community, but probably on the lower end in spending and probably much higher in wealth. So it's an interesting dynamic looking at the kids' peer group and them starting to be more aware of differences between families. 

UndergroundDaytimeDad

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Re: How much are you planning to give kids?
« Reply #32 on: August 17, 2018, 06:44:17 AM »
- Most of us are here wanting FI as we miss our freedom and our time being tied to a 9-5 desk job. By giving kids inheritance we can essentially free them (fully or partially) and give them this joy of independence

To me, this is the key.  Many of the responses on this thread seem to focus on the "work and suffering builds character" narrative, as well as "work is productive for society".  I am quite confused how people seem to be overlooking the obvious inconsistency with these statements and even a basic Mustachian lifestyle.  Not trying to start a massive debate, just thought that was worth pointing out so maybe it generates thought. 

The notion that giving your children money will guarantee an entitled and terrible attitude is grossly oversimplified.  There may be correlation here that people have seen over their lifetimes, but it is just as probable that the parents of these people also paid no attention to them and just threw cash at them.  An incredibly wealthy friend of mine in university told me that his mother just gave him cash and sent him to boarding school because he impeded on her ability to sit on a Caribbean beach all day.  He was completely aware of her attitudes and poor approach to parenting, and was actually incredibly modest and did not flaunt his wealth.  Clearly this is just one anecdote, but it illustrates that cash in hand does not have to equal awful treatment of others.  He knew the real cause of the obnoxious behaviour of his peers, and the proximate cause was not their wealth. 

The short version of my plan is to teach the kids about money, show them where it goes (bills, food, clothing, etc.), always relating this to effort expended to acquire said funds, ex hours worked at a fast food place.  When they are older, teach them about investing and work together to build a mock portfolio to practice.  Graduate this to a real portfolio seeded with inheritance money.  Once they are comfortable with this, increase contributions to them in a transparent and predictable manner.  I was the recipient of a weird form of carrot and stick based control with money, so I am primed to ensure I do not repeat this behaviour. 

elaine amj

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Re: How much are you planning to give kids?
« Reply #33 on: August 17, 2018, 09:24:25 AM »
I'm not planning on leaving an inheritance per se, but will be delighted to leave them whatever I have left at the end of the day.

That said, I do think it is important not to count your chickens before they are hatched. I always thought I would receive a generous inheritance from my mother (although I never counted on it and always lived by the thought that it was her money to use as she wished).

Some years ago she remarried and they went on a spending spree. I cautioned her mildly but she's a grown adult and can make her own decisions. About 5 years later, my stepfather passed away and when I went to help her sort out her finances - I was horrified to find my financially prudent mother had spent her way into a huge debt that was beyond anything I could assist with.  Thankfully, she has been able to liquidate various properties, etc and eventually pay it all off. Now she has enough resources for the rest of her life if she lives frugally. So she is moving in with me (which we are all happy about). Just sad to think of all those wasted resources. Then again, they did enjoy spending it and she was very happy with him so that's something.

Turns out that we will likely get a much larger inheritance from my husband’s "poor" father than we will from my "wealthy" parents lol. Oh well, none of my plans are based on inheritance money and I'd be content if they spend it all. My only wish is that they are financially independent until they are gone. I did not really account for parent care in my FIRE math.

As for my own kids, I started warning them at 13 that while I have set aside college savings for them which is enough to pay for 4 years at our local school, I expect them to pay their own living expenses, etc after high school and that they may or may not have a home with me at that point. I'll likely be MUCH softer than that but I wanted to set expectations low.

Now that they are 15&17, my thoughts are to give them each the money I set aside for 4 years school (over 4 years) and they can make their own choices. My daughter is hoping for some scholarships so the extra money can go towards some of her living expenses or as seed money for her future. Same with my son who is thinking of maybe the skilled trades or a cheaper diploma.

They have some birthday cash, etc I have been saving for them for many years and I am thinking I should set up an index fund for each kid for their retirement. Tempting to help more in the short term but perhaps starting them on the path to long term savings will be more helpful in the long run.

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galliver

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Re: How much are you planning to give kids?
« Reply #34 on: August 17, 2018, 12:12:03 PM »
Nowhere near considering this problem in actuality for two reasons (1: no kids yet 2: no significant savings yet ;) ), but I've considered it philosophically/hypothetically.

I do feel that, if a parent intends to set up their child for success, they are responsible for helping with some kind of post-secondary education (be that college or trade school). Doesn't mean they shouldn't be encouraged to work part-time in HS and college: it's good experience, anyway. And they should absolutely cover some of their needs as well as wants with their earnings, and plan for the future. Helping a kid with postsecondary schooling doesn't necessarily mean presenting it on a silver platter...it's more about the security; it's hard to concentrate when you're in a state of stress and fear over whether you'll be able to afford the next semester. It's also about them being able to prioritize education, even forgoing work if they really need to buckle down in a tough semester.

Beyond that, I think there are some very important jobs out there that aren't paid well, and if I had the means to do it, I would want to give my kids the freedom to choose their vocation without worrying if they'll have a roof over their head or food on the table. If I had the means, I'd want to provide them a universal basic income sort of deal (I'm thinking the equivalent of $1-2k in today's dollars). It's enough to bring a $30k salary up to more professional levels, or to live frugally and dedicate time to art or charity work. It is also enough to play video games and drink beer, but probably in a craptastic apartment, and I'd hope I could raise them to want to eventually improve their situation...

Basically, I think that was a long-winded way of restating the Warren Buffet quote cited above. Enough to do anything, but not to do nothing (for long).

formerlydivorcedmom

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Re: How much are you planning to give kids?
« Reply #35 on: August 17, 2018, 03:03:11 PM »
My plan is this:

- Pay for their college while asking them to work part time for 4-8 hours a week to learn the value of work
- Don't tell about any inheritance and let them find their job and work hard through the initial years. Teach them MMM principles and let them save hard till mid 30s where they are mostly financially independent
- Keep whatever is necessary for me and my wife's survival and distribute them extra amount as inheritance once they are mid30s

Overall, I like your plan, but a minor point of caution - it can be quite difficult to find a job that only offers 4-8 hours/week.  My on-campus jobs were all 10-15 hours, and I never found a paying organized off-campus job for less than 15 hours a week.  (I could do tutoring on my own and set my own hours, but that was it.)

My dad died when I was in my early 30s.  He always said he planned to spend every bit of his money and not leave us an inheritance, and that's pretty much what he did.  My sister and  were both glad he got to enjoy it.  If there was anything left over, it went to his new wife, and neither of us begrudged that.

My mom intends to leave us each an inheritance of $100k -200k.  I expect/hope she'll die long after I retire.  In that case, I'll end up distributing any inheritance I get from her to the kids and charities.  And I'll take the entire extended family on a nice vacation in her memory (we do a lot of family travelling with her now).

We plan to pay for 4 years of undergrad at a state university for each kid.  We'll pay for weddings for each of them.  I'd love to give them lump sums in their 30s and 40s...we'll have to see how the stash is doing.  I fully intend that when we die at least half of what's left goes to charity.  I want to make sure college is covered for all my descendants.  The rest can be split among the heirs.

Acorns

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Re: How much are you planning to give kids?
« Reply #36 on: August 19, 2018, 04:19:52 PM »
I plan on leaving most everything to my kids, with the exception of possible charitable contributions, but I also hope to make most distributions both to my kids and charities, before I die. Like many people have already said, by the time I die, my kids are likely to be in their 50s, so if they are scraping by and hanging on for an inheritance, they have already mismanaged and squandered their time and potential. I don't understand why anyone wouldn't want to leave an inheritance to their children/grandchildren. I don't expect housing, healthcare, or higher education to get any cheaper (in relative or absolute terms) any time in the future, and I will never be in a position to leave my kids a life altering sum (such that they could completely live a life of self-indulgence), so I will be happy to leave them (or give them before I die) whatever I can to cover these necessities.

Blissful Biker

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Re: How much are you planning to give kids?
« Reply #37 on: August 27, 2018, 04:37:00 PM »
We are paying for about 80% of their education, a big leg up but not a free ride.

Other than that, our intent is not to leave an inheritance.  If we can time it right, we'll spend our last nickel at a rave on a Greek island just before we die. 



I like to be a little conservative with my financial forecasting, so odds are we will still have many nickels left when we die which will be split amongst the kids.

talltexan

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Re: How much are you planning to give kids?
« Reply #38 on: August 29, 2018, 08:15:16 AM »
Based on everything I've seen, the greatest way to help adult children is with childcare.

I'm aware of grandparents who simply provide it. But that requires physically living there, and that may not make sense.

But I think heavily subsidizing the childcare expenses--assuming your own children are not entitled, and are picking the childcare option that best suits their work commitments--would have a high internal rate of return.

doggyfizzle

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Re: How much are you planning to give kids?
« Reply #39 on: August 30, 2018, 12:32:00 PM »
Based on everything I've seen, the greatest way to help adult children is with childcare.

I'm aware of grandparents who simply provide it. But that requires physically living there, and that may not make sense.

But I think heavily subsidizing the childcare expenses--assuming your own children are not entitled, and are picking the childcare option that best suits their work commitments--would have a high internal rate of return.

This was done for my in-laws by my wife's grandparents, and they are helping us out with daycare costs as well.  I completely agree that it is an amazing way to provide both financial assistance that promotes work, but also allows for a much less stressful parenting Pre-K experience.  I can't wait to do the same thing for my kiddo if/when he has his own kids!

sandyvanburen

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Re: How much are you planning to give kids?
« Reply #40 on: September 13, 2018, 09:11:30 AM »
Our kid is getting a free ride tru college but that's about it. Our cousin has had the red carpet rolled out for her all her life (daddy paid for school, daddy bought her an appartment, daddy pays her allowance). She's been offered a very prestegeous internship at one of the biggest law firms in the country and had turned it down because she 'doesn't know what to do with life'...

It's really not the kind of kid we want to raise. Our daughter is going to have to buckle down for what she wants. Even college is optional. We only intend to pay so long as she doesn't take out additional loans to fund her lifestyle (such as our cousin did). If she does that, she can pay for her own education too.

We plan on retiring and spending up our money. Something might be left (a paid off house, likely). That's an extra boon for her. But honestly, even that house we might 'eat' before we croak!!

StacheyStache

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Re: How much are you planning to give kids?
« Reply #41 on: September 14, 2018, 12:35:30 PM »
Subject to change as I don't have kids.  But if I do have kids, I plan on paying for their educations and helping with a house down payment, as long as I can afford it, and probably helping with miscellaneous odds and ends as well, as long as I didn't raise little entitled shits and it doesn't endanger my own retirement.  I see things as getting harder for the upcoming generations, not easier, not even staying the same, in terms of at the very least housing and education, probably healthcare as well.  I hear a lot of comments on here about "well my parents paid X for my degree and I earned the rest with a summer job and that's what we'll do for my kid."  Okay, that's fine, but understand that puts your kid in a measurably worse position than you as college has skyrocketed past inflation.  If that's cool with you, go for it, it's your money and they're entitled to nothing, maybe you're right that the extra hustle will do them good.  But understand that your kid will have a bigger bill to pay than you or your parents did for the same education, and may end up having to make some very hard choices you never had to (either struggling financially to pay back loans in a modest paying job they enjoy or chasing 80 hour work weeks in a job that they don't enjoy but pays enough to cover their student loans). 

I don't really understand why on this forum of all places we're seeing so much of this 'struggle builds character, money hurts kids' school of thought.  If you raise your kids with a good work ethic and financial education, they should be able to optimize any assistance you give them. 

My parents paid for my entire education, including law school.  They matched my teenage savings in a Roth IRA that I only found out about a year ago (it now has 30k and I've never touched it, nor will I).  They're also planning to help (in a modest amount, I've currently saved close to six times what they've offered) with a down payment, as well as paying for my car insurance, keeping me on their cell phone plan and other odds and ends. 

Here's a story I don't admit on this board often because parental assistance is viewed so negatively:  I once rented an 800 dollar a month apartment for a couple of months (incredibly cheap for my area), in a not-so-great location because like many new lawyers I was paid abysmally and wanted to save as quick as possible.  I say only 'a couple of months' because a well-publicized murder took place at the IHOP across the street from my apartment and my parents immediately offered to pay to break my lease, moving expenses and the difference in the nicer apartment and the cheaper apartment for a year because they were worried about my safety.  I took them up on their offer, but was able to make the higher rent on my own because I ended up getting a 10k raise via job hopping and could pay the difference.  I then got another 10k raise about about two years later and I'm doing quite nicely for myself now.  I've been out of school less than four years and saved 70k on my own, not counting the 30k they saved for me in a Roth IRA.

I didn't turn into a lazy brat or on drugs or perpetually unemployed because I'm "finding myself" or whatever.  But because of their help, I also don't have to chase the 80 hour a week private practice jobs my friends had to because of the weight of their student loan debts or live in a unsafe apartment because I'm saving and "building character" I guess.  Instead I work in a critically necessary public interest position that may not pay the best for a lawyer job (60k) but allows me to help people instead of chasing money and provides good work life balance.  I believe this is the case because my parents stressed to me, early and often, the importance of education and having a career that makes you happy and fulfilled as well as the importance of money, of saving and compounding interest, from going over the pennies I was earning every month in my little savings account that they had me contribute to from as far back as I can remember to celebrating the day they paid off our house when I was in middle school and carefully explaining how much they saved in interest. 

As far as inheritance goes, if you set up your kids by helping with education and a first home, they'll have such an amazing leg up in life it's doubtful they'll ever need more.  Compounding isn't just for the stock market. 

I dunno where I'm going with this TL;DR.  Just wanted to point out that financial help doesn't always lead to maladjusted kids. 
« Last Edit: September 14, 2018, 12:43:42 PM by StacheyStache »