Handling of Wealth Transfer to child(ren)

[Redherring]

Married couple, low/mid 50s with single child. FI, spouse retired 3 years ago, I will follow suit in 1-2 years. Got a big stache and will have SWR less than 2% meaning our stache will likely grow over time. Our wish is to transfer wealth to our only child (23), who after grad school will enter job market. No worries there, very mature, high work ethics, independent, smart. We subscribe to the philosophy of Die with Zero regarding transfer of wealth- do it when it matters (20s/30s), not when we die, hopefully in several decades. Of course we want to keep our FI, but we can still transfer serious money and have more than what we ever need.
We pay fully for college and grad school and have given her some seed funds (all fully invested in ETFs, part of learning financial skills). But she does not know we are quite wealthy, nor that we intent to give her money early in life (for a home, more investments, etc).

Questions:
- Any first hand Experience or perspectives in sharing - or not - any financial details? I guess we can give payment for a house, for example, and still not share details but cat is then kindda out of the bag still.
- anyone with experience doing transfer of wealth while children still relatively young? Do‘s and dont‘s?

[lhamo]

Re: real estate, one way to do it would be to tell the child you are interested in buying investment properties and have them help you pick a house that they would like to live in, and then maybe charge them a minimal "rent" (which you plow back into investments that will eventually go to them). IF they have any interest in investing in real estate themselves, then you could try for a duplex or multiplex as an initial property, have them live in one unit in exchange for property management services. 

One thing we are doing with our kids is to gradually gift them the residuals from their college funds.  My preference would be to hang on to those in the 529s for possible future grandkids, but TheX has different ideas (and doesn't quite understand the tax implications) so I will dole out the money over time instead.  DS is easy -- he is still in grad school so I can just send him the money in tranches until it is gone.  DD is going to be a bit more challenging as her pot is bigger and I kind of doubt she will go to grad school.  In both cases I don't think I'll do more than 10-15k/year.

[Dancin'Dog]

I would suggest consulting an estate attorney before making substantial gifts.  They will list the potential problems and advise on how to avoid them. 


Divorce is the main threat that comes to my mind.  It would be a shame to see a bad marriage partner walk off with a large portion of your gifts.

[Laura33]

First, you don't need to decide anything right now, which is good; you have time to think and research. 

My biggest concern about gifts right now would be that your kid might simply use those funds to increase her lifestyle above what she could afford on her own -- that she would effectively become dependent on your largesse to maintain her lifestyle rather than learning what it's like to stand on her own feet.  There's value in being on your own, struggling, making your own ends meet, etc., early in your career; that's when you are building the habits and muscles and resilience to manage hard shit.  And there's always hard shit.  Developing those skills when you're young and the consequences are minor is how you prepare yourself to handle the hard shit when you're older and the consequences are significant. 

So from that standpoint, I wouldn't share anything with her about your future gift plans.  Let her find her way through on her own right now.  When you do decide to give something, target it to specific life events and big things -- e.g., you can offer to help with a downpayment on a house when she tells you she's looking to buy. 

Also consider whether you want to focus on any future generations.  Funding a grandkid 529 can be a huge financial relief to both the kid and the grandkid (helped us ensure both kids could graduate with zero debt, which in this world is a huge leg up).

FWIW, we're in a similar stage with our own DD -- 23, in first job out of college.  She is learning a ton from being on her own -- and she's learning more from her mistakes than from the stuff she gets right the first time.  For example, she rented herself a lovely, expensive apartment right downtown.  It's fabulous, she can totally afford it on her salary, it has allowed her to do things like walk to the farmers' market and be the downtown base for her friends, etc.  Except now she's decided she hates her job and wants to quit and is rapidly discovering that there aren't a whole bunch of other jobs out there for new grads that can cover that kind of rent.  So she is now berating herself for choosing the more expensive place and planning to stay in the job as long as she needs to until she can get the apartment sublet. 

We obviously could bail her out and cover the rent until she gets a new job (and there's a part of me that wants to do exactly that -- my dear child is unhappy!  Must fix!).  But how does she learn if we shield her from the consequences of her decisions?  So instead, I said "and that's why I read MMM -- not because I want to walk out of my job tomorrow, but because I want to be able to walk out of my job tomorrow." 

[Ron Scott]

We have assets and intend to pass them over time to our daughter through gifting outright and trusts. We will have assets at our death too, that we intend to pass to her when she is hopefully a lot older.

The most admirable 23 year-old whose major life experiences circle around success in college and some grad school have A LOT of growing up to do, and sudden wealth given by parents is not a great thing IMO.

I could see making sure she had nice rented living accommodations and could spend more of her own earnings on play. We did that and while she overspent on clothes and households, she saved the max on her 401k, travelled intelligently, and developed a nice career. But they are not going to treat money the way you did.

I’d wait for a life event like a 2-3 year old marriage to dole out (prenup protected) house money. A paid up 529 would be nice for the grandkids too. I would never do a massive money dump all at once on a 25 or 30 year old—or even 35.

You obviously have to involve a seasoned estate attorney. If you’re UHNW and afraid of losing the Trump estate limits they’ll have a number of options with pros and cons you’ll want to consider. They’ve also seen it all and will have life issues to present that will make you think.

Asking is a great first step. Read some estate planning books to prepare for an attorney and then get one.

You haven’t said anything that would lead me to believe the family is faced with an immediate need to finalize this. Get to know your child as an adult. Don’t rush it.

[secondcor521]

Similar situation except I am single and have three kids.

- Any first hand Experience or perspectives in sharing - or not - any financial details? I guess we can give payment for a house, for example, and still not share details but cat is then kindda out of the bag still.

She's going to find out some time.  I figure it's better they find out gradually now rather than suddenly later.

If you start now, she can ask questions and you can answer.  You can be gradual about it.  You can give her context to help her continue on the great path she's on.

She's probably past the age where she'll blab to her friends about your wealth.

I started talking to my kids about my money when they were in junior high.  I did three things.  First, I connected it with what was happening in our lives:  "Dad can retire because he saved up enough money to live off dividends and interest" "You can go to college because Dad (and Mom) saved up for it since you were little." etc.  Second, I started with generalities and broad statements and got more specific over time.  Third, I started with limited information and have started sharing more information over time.

I also did it all gradually so they could absorb it and get used to it.

- anyone with experience doing transfer of wealth while children still relatively young? Do‘s and dont‘s?

Economic outpatient care (EOC) (as mentioned by @Laura33) is definitely something to watch out for.  If you want to read more about EOC, you can read The Millionaire Next Door.

You'll want to be aware of federal gift tax rules.  Basically if you give her more than the annual exclusion amount ($18K and it adjusts periodically for inflation) in a year, you would have to file a federal gift tax return and the excess above $18K would be deducted from your estate tax exemption.  But since you're married each of you can gift her $18K per year, and if she marries you can do the same to her spouse, so $18K x 4.

I personally choose to gift appreciated stock from my taxable account because it defers the capital gains.  It also gives them a bit of incentive to save the money rather than spend it.  But I also give them the option to receive cash at a lesser amount if they want.

I've also gradually ramped up the amount over time as my kids demonstrate they can handle the gifts and are making reasonable decisions with them.

Gifts, if not comingled, are exempt from division in divorce in my state.  You might check the rules in her state.

You also might want to read up on federal and state estate and inheritance taxes.  Yes, there are four different combinations there (*).  Lots of people say lots of things on this topic, and there is a lot of confusion and misinformation presented by many parties.  I always suggest reading books on the topic by Nolo press and visiting with an estate attorney in your state of residence.

(*) Actually only three at most, and maybe fewer.  There is no such thing as a federal inheritance tax.  There is a federal estate tax.  State estate taxes and state inheritance taxes vary from state to state - my state has neither, some states have one or the other, and I think one state has both.

[mathlete]

Sounds like a job for a professional. Maybe ask around about a wealth manager. I know that's a tough pill for most of us DIYers to swallow, but it's important to get this right from a tax perspective.

Some things I would think about were I in this position:

1.) Spend lavishly to create lots of memories with kiddo while you're still young and can participate fully.
2.) Maybe tell them not to sweat saving for retirement too much because they'll have a big inheritance coming, likely right around the time they hit 65 (sorry if that's morbid)

Even #2 is a little tricky, though. Imagine you and your spouse get sued in 25 years and have to pay out millions. Then your kid is 48 and didn't save super seriously. Yeah, kind of arguing myself out of this one.
 

[Redherring]

Thanks all for the very valuable input so far. It all resonates well with me, indeed we are not in a hurry. I believe the first major event will be when she‘ll want her own home, but likely in 3-4 years down the line. So there is time. And yes, our gifts have been, and continue to be amazing vacations and experiences together (I remember her when younger being so worried asking if we actually afford this haha).

She knows we can and will retire much before usual but not that we have her (and her future kids) covered too. I will think about breaking this to her over time. I much agree on learning from and living with own mistakes, what I dont want her to do is to change financial behavior because she will think we just cover her lifestyle creep/ mistakes/ lack of savings discipline. At least not yet

[twinstudy]

I would allow the child to borrow from your assets (with a nil real interest rate) but otherwise would be wary of large cash gifts especially if your child is already intelligent and astute.

My parents offered me money when I was in my 20s and I accepted some of their gracious help with my first home deposit - I paid them back over the following years.

They offered me help again in my 30s and I respectfully declined - I had no use for the money and it was all academic by then. I feel like if I had accepted any money at that stage, I would not have done anything with it that would have changed my life in any way, other than perhaps it might reduce my SWR from 2.5 to 2.0%.

As always, your mileage may vary.

[wageslave23]

First, you don't need to decide anything right now, which is good; you have time to think and research. 

My biggest concern about gifts right now would be that your kid might simply use those funds to increase her lifestyle above what she could afford on her own -- that she would effectively become dependent on your largesse to maintain her lifestyle rather than learning what it's like to stand on her own feet.  There's value in being on your own, struggling, making your own ends meet, etc., early in your career; that's when you are building the habits and muscles and resilience to manage hard shit.  And there's always hard shit.  Developing those skills when you're young and the consequences are minor is how you prepare yourself to handle the hard shit when you're older and the consequences are significant. 

So from that standpoint, I wouldn't share anything with her about your future gift plans.  Let her find her way through on her own right now.  When you do decide to give something, target it to specific life events and big things -- e.g., you can offer to help with a downpayment on a house when she tells you she's looking to buy. 

Also consider whether you want to focus on any future generations.  Funding a grandkid 529 can be a huge financial relief to both the kid and the grandkid (helped us ensure both kids could graduate with zero debt, which in this world is a huge leg up).

FWIW, we're in a similar stage with our own DD -- 23, in first job out of college.  She is learning a ton from being on her own -- and she's learning more from her mistakes than from the stuff she gets right the first time.  For example, she rented herself a lovely, expensive apartment right downtown.  It's fabulous, she can totally afford it on her salary, it has allowed her to do things like walk to the farmers' market and be the downtown base for her friends, etc.  Except now she's decided she hates her job and wants to quit and is rapidly discovering that there aren't a whole bunch of other jobs out there for new grads that can cover that kind of rent.  So she is now berating herself for choosing the more expensive place and planning to stay in the job as long as she needs to until she can get the apartment sublet. 

We obviously could bail her out and cover the rent until she gets a new job (and there's a part of me that wants to do exactly that -- my dear child is unhappy!  Must fix!).  But how does she learn if we shield her from the consequences of her decisions?  So instead, I said "and that's why I read MMM -- not because I want to walk out of my job tomorrow, but because I want to be able to walk out of my job tomorrow."

This.  My first few years of struggling made me into the person I am today. I learned to be ok living in a cheap crappy apartment driving $6k cavalier I paid cash for.  I saved up a down payment for house that I ended up renting out and moving to cheap crappy apartment because I realized the rent would pay for the mortgage on the house AND the rent for the apartment.  So now I had no housing expenses.

I learned that compound interest is much sweeter than anything I could have bought with that money. I also learned not to waste money because I know how hard I worked at crappy jobs in order to accumulate that money.

I agree with others who said 529 for grandkids. Or wait and see if after having proven herself, maybe your daughter has the skills and wisdom to start a business but would benefit from you matching her startup contributions.  Don't alleviate the struggle.  Wait until after she has successfully come out on top, then contribute to her kicking more ass.  Looking back, the best time for someone to give me money would have been around 35. I had established myself and learned the majority of my lessons, then it was just a matter of putting time in to eventually be set for life. The last 5 years since 35 have mostly been a waste from a personal growth perspective.  So a large cash infusion to avoid it would have been great.

[former player]

I agree with others that now is not the time to start giving your daughter money.

There are two potential financial pinch points in her future: the first is buying a first home and the second is when there are young children at home.  Helping with a first deposit in a HCOL area or helping with childcare are both possibilities for the future. Putting money into a grandchild's future education is fine, but good childcare for years 1 to 5 matters a lot so funding future university while ignoring possible financial struggles in the early years might not be the best option.

As for what you tell her about your wealth, unless she spends her adult life in a social bubble she will probably start to work out for herself that you have more money than most, and that's as much as she needs to know.

[jeninco]

I concur with the folks on 529s -- my aunt (a retired public school teacher) started one for each of her nieces and nephews, and it lit a fire under the rest of us to get going on that. Turns out compound interest is our friend there, too -- setting aside $$ every year starting at birth allowed us to easily send our oldest to an extremely pricy (but perfect for him) private college. (Similar amount has been saved for the younger, but he wound up at a perfect-for-him different situation, and is going to wind up with a bunch of $$ in a Roth. Or a scholarship named after him -- we'll see!)

[Just Joe]

Sounds like a job for a professional. Maybe ask around about a wealth manager. I know that's a tough pill for most of us DIYers to swallow, but it's important to get this right from a tax perspective.

Some things I would think about were I in this position:

1.) Spend lavishly to create lots of memories with kiddo while you're still young and can participate fully.
2.) Maybe tell them not to sweat saving for retirement too much because they'll have a big inheritance coming, likely right around the time they hit 65 (sorry if that's morbid)

Even #2 is a little tricky, though. Imagine you and your spouse get sued in 25 years and have to pay out millions. Then your kid is 48 and didn't save super seriously. Yeah, kind of arguing myself out of this one.

Or your health issues will lead to expensive care that will eat up much of the money you set aside for your children's' inheritance.

I was told the "don't worry about retirement" statement at some point years ago but the truth is, healthcare will probably consume much of what was quasi-promised me by my parents b/c they may or may not have understood the real cost of assisted living. I don't know how much money is there but I know the value of their property and vehicles - and I know locally quality assisted living is ~$6K+ in our area. So, $70K per year. Will they need 5 years or 20 years? I expect healthcare to consume the value of their property. Maybe there is more in accounts. I don't know. Not counting on anything. We're mortgage free in a few years and retired shortly after that.

DW and I decided to be FI and not expect gifts. I have an relative a generation back that spent much of their life waiting for an inheritance rather than living a good life. They never accomplished much for themself. 

[Much Fishing to Do]

I gave/inted to give each of my 3 kids a 529 with enough for 4 years of college.  I give them a new car at graduation in return for their word to stay out of all debt except for a mortgage, as paying for school and keeping them out of a car loan was all done to keep them out of debt.  I also let them keep the remains of their 529, my first has a pretty good size down payment there remaining as he saved with some scholarships.  I feel this started their careers in a great spot, but they still have to do the monthly budgeting to meet their salaries which I think is critical to start with.

I'll probably help when they buy a house, but otherwise let them get used to living off their salaries.  After a decade of that I'll likely start passing cash to them, at that point they'd both know finances well and appreciate the boost to their SOL, which I think would get lost if I started that at 22.  PLus, I'll know myself a lot better how my stache is looking.  If one's investments are mostly the market, its hard to know how much you can help which is why I think so much gets passed on at death.  But I think OP has a NW almost double mine, and fewer kids, and with a 2% WR its pretty easy to assume a lot more room is there for them to give more earlier if desired.

[zolotiyeruki]

My grandparents gifted each grandkid money when they were born, that then compounded for 18 years and paid for a whole lotta college. My parents have done the same, and I plan to also.

If the kid is responsible and level-headed, she don't need the help, except for maybe a downpayment on a house.  But even then, she may not need it.  I agree with the others that it's important for kids to have several years on their own to establish themselves after graduating college, to develop good habits, attitudes, and trajectory.  And once DD has hit that point, any money you give her will be unnecessary. 

You might offer to help contribute to her retirement or other investments.  I'm middle-aged, and my time is becoming more and more valuable to me.  Shortening my time to retirement would be a tremendous gift.

[GilesMM]

Figure out the maximum you can give them without destroying their self reliance and earmark the rest for charity.

[tygertygertyger]

My partner's parents, once they started having to take RMDs, gave money to their kids to max an IRA each year. Not a ton of wealth, but over time, it'll be a great boost to their retirement.

[Just Joe]

How do you spend down a 529 account beyond books, tuition and so forth? I was told that everything was limited to school type expenses and required receipts for accounting?

[zolotiyeruki]

How do you spend down a 529 account beyond books, tuition and so forth? I was told that everything was limited to school type expenses and required receipts for accounting?

Starting this year, you can roll over unused 529 funds into a Roth IRA, up to $35k lifetime total.

Also, a 529 can be transferred to any other beneficiary, for example, DD's (eventual) kids.

[Ron Scott]

How do you spend down a 529 account beyond books, tuition and so forth? I was told that everything was limited to school type expenses and required receipts for accounting?

Starting this year, you can roll over unused 529 funds into a Roth IRA, up to $35k lifetime total.

Also, a 529 can be transferred to any other beneficiary, for example, DD's (eventual) kids.

I am doing it this year as the eligibility stars align.  If Redherring started it when the child was 8 or younger it should work as well.

[secondcor521]

How do you spend down a 529 account beyond books, tuition and so forth? I was told that everything was limited to school type expenses and required receipts for accounting?

Starting this year, you can roll over unused 529 funds into a Roth IRA, up to $35k lifetime total.

Also, a 529 can be transferred to any other beneficiary, for example, DD's (eventual) kids.

Those are the two most tax friendly options.  You can also just take out money for non-education stuff and pay ordinary income tax plus a 10% penalty on the earnings portion.

[Much Fishing to Do]

How do you spend down a 529 account beyond books, tuition and so forth? I was told that everything was limited to school type expenses and required receipts for accounting?

Starting this year, you can roll over unused 529 funds into a Roth IRA, up to $35k lifetime total.

Also, a 529 can be transferred to any other beneficiary, for example, DD's (eventual) kids.

Those are the two most tax friendly options.  You can also just take out money for non-education stuff and pay ordinary income tax plus a 10% penalty on the earnings portion.

Yes, for the remaining funds I intend to give my kids most likely I'll give them cash form a different pot and just hang on to the 529s, likely for grandkids if that somehow happens.... If I later want to withdraw it will not be a as huge a hit as it seems, for the kid that is graduating with about $50k left in it only half is earnings, so I'll owe $2500 in penalty, and prob nothing in taxes as I would do this in a low income RE year so taxes would likely be next to nothing.

[cangelosibrown]

I've spent an enormous amount of time thinking through this question, both because of myself and my siblings (who got a decent sized inheritance when we were quite young), and my own children who certainly will at some point, but what that will look like is yet to be determined.

It's really two questions. First, the easy question ,what can you afford to give?  If you and your wife can afford to do the max $36k gift indefinitely, then that's a good starting point.

The second part is about how you want to distort the life decisions they're going to make. Because no matter what you do, it will change what they can and do decide. A lot of people default to doing education and house down payments. Those push towards over consuming those two things. Maybe that's a good thing, maybe it's not. I doubt I would have gone to grad school if it hadn't been paid for. Would your child have?

I think the general default is to try to ensure that they'll still be forced to live a "normal" life cycle, with just nicer stuff. Nicer house, nicer vacations, whatever. I don't think there's anything wrong with that, but given the website we're on right now, I don't think that's what a lot of us would actually choose for ourselves given the chance.

My siblings and I all just had cash when we were your daughter's age and all had options that wouldn't have otherwise been available. On one hand, I am pretty certain that will all would have been more successful by traditional metrics if we hadn't had those options. We all did completely different things with our lives than each other, and now that we're all in our 40s, I can pretty unequivocally say that our lives have all been very successful by our own internal metrics. I don't get into personal details here, but we would have all had very different lives if the money had gone to a down payment on a house, locking us into spending more money on housing forever. I do have cousins who did exactly that though, and they're doing great too.

My own thinking is not settled on the specifics of the matter, and my children are still young enough that it doesn't need to be. I just want to encourage you dream a little differently for your child's life, or really allow them to dream a little differently. I think it's important for us all to have the ability to work a normal job and to do that for some period of time. Beyond that, I am not sure what value it has in and of itself.

[Just Joe]

How do you spend down a 529 account beyond books, tuition and so forth? I was told that everything was limited to school type expenses and required receipts for accounting?

Starting this year, you can roll over unused 529 funds into a Roth IRA, up to $35k lifetime total.

Also, a 529 can be transferred to any other beneficiary, for example, DD's (eventual) kids.

Those are the two most tax friendly options.  You can also just take out money for non-education stuff and pay ordinary income tax plus a 10% penalty on the earnings portion.

Thank you.

We want to help our offspring get ahead and not struggle into adulthood but that struggle made DW and I what we are today. College money is available for both.

One seems to be ready to make a go of it this fall while the other has used every opportunity we have given them to instead relax and sit down.

I'm not sure how to best help the relaxed one aside from putting money into accounts for later in their life in case they come around.

Someday, we can help each one with their dream as a form of wealth transfer. Want to renovate an old house? We could offer money for materials or help hire experts. We could help with daycare costs. We could help with family vacations.

I;m pretty sure the one offspring will never launch if left to their own devices.

[zolotiyeruki]

I;m pretty sure the one offspring will never launch if left to their own devices.

If that offspring won't launch on their own, why would they launch while still being subsidized?

[aloevera1]

Well here is another idea.

Give them as much as you feel comfortable if they blow it on stupid stuff. If your tolerance ends at $100, then it will be $100. If you are OK with them blowing $10,000 then give that much. Etc.

They are (or will be) adults. Money coming with strings attached is just as bad as economic outpatient care. It is profoundly damaging to the relationship.

If you instilled some of your values in them, great, then you would probably feel a lot more comfortable giving money or contributing financially because you understand their decision making process.

If your values are complete opposite then no amount of money is going to bring them closer to you. You will always judge their "stupid" decisions.

I think this is less about reducing their struggle and more about having adult relationship. At some point you need to stop trying to shape them as a person and handle YOUR feelings about who they are.

Just my $0.02.

[Just Joe]

I;m pretty sure the one offspring will never launch if left to their own devices.

If that offspring won't launch on their own, why would they launch while still being subsidized?

You're not wrong. The trick is to force them transition from from empty pockets to being able to pay for their own needs. Am curious how everyone else handles this kind of situation.

[twinstudy]

I;m pretty sure the one offspring will never launch if left to their own devices.

If that offspring won't launch on their own, why would they launch while still being subsidized?

They won't. The reality is that most capable children will do well, whether or not subsidised, and most loafers and gadabouts will struggle regardless.

[zolotiyeruki]

I;m pretty sure the one offspring will never launch if left to their own devices.

If that offspring won't launch on their own, why would they launch while still being subsidized?

You're not wrong. The trick is to force them transition from from empty pockets to being able to pay for their own needs. Am curious how everyone else handles this kind of situation.

I don't have a sure answer, but I can tell you what DW and I are doing: from an early age, we set an expectation with our kids that once they graduate and leave the house, they're expected to support themselves. That includes paying their way through college or trade school or whatever.  We're willing to help in case of an emergency, but they're expected to pick themselves up.

We'll see how it works out. I've got one kid that seems to have her head on straight, and another that may have to learn the hard way.

[Laura33]

I;m pretty sure the one offspring will never launch if left to their own devices.

If that offspring won't launch on their own, why would they launch while still being subsidized?

You're not wrong. The trick is to force them transition from from empty pockets to being able to pay for their own needs. Am curious how everyone else handles this kind of situation.

You cannot do this.  Period.  Full stop.  Put that idea right out of your head. 

The kid will figure it out on their own or not.  Anything that you do to provide external support -- anything -- will simply delay the kid's decision.  Read The Millionaire Next Door:  the kids who can't seem to manage get a disproportionate share of parental wealth, and yet all that extra money just further enables their inability to do anything on their own.

The real question you face is what is the minimum standard of living you are willing to allow that child?  Crappy apartment supported by a minimum-wage job?  Living on the street?  That's the amount of money you need to be willing/prepared to give -- and you don't offer any of that until they are actually facing that worst-case scenario. 

Only caveat is if there are untreated learning disabilities and/or mental health issues.  If that is the case, then your job is to focus on getting appropriate treatment or assistance -- and to talk to an experienced therapist of your own to figure out how to best support a kid dealing with that. 

[former player]

I;m pretty sure the one offspring will never launch if left to their own devices.

If that offspring won't launch on their own, why would they launch while still being subsidized?

You're not wrong. The trick is to force them transition from from empty pockets to being able to pay for their own needs. Am curious how everyone else handles this kind of situation.

You cannot do this.  Period.  Full stop.  Put that idea right out of your head. 

The kid will figure it out on their own or not.  Anything that you do to provide external support -- anything -- will simply delay the kid's decision.  Read The Millionaire Next Door:  the kids who can't seem to manage get a disproportionate share of parental wealth, and yet all that extra money just further enables their inability to do anything on their own.

The real question you face is what is the minimum standard of living you are willing to allow that child?  Crappy apartment supported by a minimum-wage job?  Living on the street?  That's the amount of money you need to be willing/prepared to give -- and you don't offer any of that until they are actually facing that worst-case scenario. 

Only caveat is if there are untreated learning disabilities and/or mental health issues.  If that is the case, then your job is to focus on getting appropriate treatment or assistance -- and to talk to an experienced therapist of your own to figure out how to best support a kid dealing with that.

There's a question that comes before the "minimum standard of living" one and that is: if the child is still living at home, all nice and comfortable and mum still doing the laundry, how do you get them out, other than selling the house out from under them?

I think you do have to get them out if possible, if they are capable of independent living, because otherwise you are setting them up for a lifetime of living with mum and dad, never having a life partner and never making a life for themselves.  And once a child has left education if they then stay at home for any length of time this tends to become a settled matter and the longer it goes on the more getting them out becomes impossible.

[Just Joe]

Only caveat is if there are untreated learning disabilities and/or mental health issues.  If that is the case, then your job is to focus on getting appropriate treatment or assistance -- and to talk to an experienced therapist of your own to figure out how to best support a kid dealing with that.

Yes, probably ADHD. Maybe from both DW and I. Definitely me. DW is starting to question a few things about herself.

We've visited that topic once before. 1st doc was a pill mill simply put. Second doc was better, also more reliant on pills rather than counseling. 

[flyingaway]

We give our son approximately the annual amount allowed by IRS without reporting each year. The money is invested in his account and managed by me. But he can use it in whatever way he wants. If you have surplus money to give to your kids, why do you think too much about it? Do you think in details about how the charities will spend your donations?

[Greystache]

DW and I retired about 10 years ago at age 55. At the time, our youngest of two kids had just graduated college and our oldest had been in the workforce for a couple years. We had no plans to provide any further financial support to our kids and they were aware of this. They got on with their lives and are doing fine. Recently, DW's mother died and left her about $100K. There was no inheritance for any of her grandchildren. We don't need the money and never really included it in our retirement planning. We could hang on to it and invest it for (hopefully) many years and give our kids a large sum when we die. Or we could give it to them now when they are buying homes, and starting families. We chose to do the latter.

[Ron Scott]

I think there’s a lot of reasonableness in this thread.

I certainly don’t buy the notion that “anything” you do to help will have negative consequences—but giving it all at once to a 20-something can backfire in ways you didn’t intend.

If you have a young adult that has successfully launched and is carrying on a good life, there’s nothing wrong with enabling them to live more comfortably. Not everything has to be played with a rugged individualistic survival of the fittest mindset.

For those with substantial assets Buffet has good advice: Give them enough so they can do anything, but not so much they can do nothing.

[MMMarbleheader]

My kids are young but I have been thinking about this a bit lately.

I think we will use our wealth/time to buy down the high expenses that come with living in this country (Housing, child care (if they live close), and college).

I don't plan on supporting their consumption aside from family vacations. I feel like with the costs above heavily discounted, they can pursue a passion career (opposed to just $$ in mind) but still need to be gainfully employed to meet their consumption levels, though the pay does not need to be that high if they learn all the resources out there about spending. Right now I am trying to get them a wide amount of experiences to see what their passions are.

Also, I very much believe in having a "village" so they are welcome to stay local for college and after. This idea of pushing your kids away is a very lonely American ideal. Our family in Portugal and in the USA of Portuguese heritage seem much happier in their close extended family units than my American side of the family they is spread throughout the USA and has to do so many things alone.

[Laura33]

A lot of people default to doing education and house down payments. Those push towards over consuming those two things. Maybe that's a good thing, maybe it's not. I doubt I would have gone to grad school if it hadn't been paid for. Would your child have?

I think we will use our wealth/time to buy down the high expenses that come with living in this country (Housing, child care (if they live close), and college).

I don't plan on supporting their consumption aside from family vacations.

I think I am much more in the latter category than the former.  Yes, things like buying a home and going to college are disproportionately pricey.  We can talk about why and whether that's a good idea and work to change things and all that.  But at the end of the day, that is still the reality that my kids are going to have to live with.  Will I help my kids upgrade from a normal home to a McMansion?  Eh, probably not.  OTOH, if my kids on their own can afford only a home in a poor school district, and I have the ability to help my kids buy a home in a better school district, I'm going to do that, because it will very likely have long-term benefits for the whole family.*

My dad and my in-laws have gone the "let's bribe the kids/grandkids to all get together by renting a house in a lovely vacation destination" route.  Those have been great, and I can totally see doing the same thing.  We can afford to do trips like that, but my half-brothers can't, so it has allowed their kids to see more than their own little corner of Texas/Colorado.  And frankly, it has pushed my own comfort zone into amazing stuff that I'd likely never have done on my own but am ever so thankful for (e.g., African safari).  I like the vacation option because it doesn't really inflate the normal lifestyle; it's an extra treat that is special precisely because it is so out-of-the-ordinary.


*My mom and my stepdad's first wife just did this for my stepsister.  She's a social worker with two kids whose husband left when the kids were in middle school.  They live in a pricey area, and they could barely afford a house on both salaries, so she had zero chance of staying anywhere even close by with just her own salary.  So my mom and her mom jointly gave her several hundred thousand so she could afford to stay in the same neighborhood and keep the kids in the same schools.  IMO, that is exactly the kind of thing that extra money should be used for.

[MMMarbleheader]

A lot of people default to doing education and house down payments. Those push towards over consuming those two things. Maybe that's a good thing, maybe it's not. I doubt I would have gone to grad school if it hadn't been paid for. Would your child have?

I think we will use our wealth/time to buy down the high expenses that come with living in this country (Housing, child care (if they live close), and college).

I don't plan on supporting their consumption aside from family vacations.

I think I am much more in the latter category than the former.  Yes, things like buying a home and going to college are disproportionately pricey.  We can talk about why and whether that's a good idea and work to change things and all that.  But at the end of the day, that is still the reality that my kids are going to have to live with.  Will I help my kids upgrade from a normal home to a McMansion?  Eh, probably not.  OTOH, if my kids on their own can afford only a home in a poor school district, and I have the ability to help my kids buy a home in a better school district, I'm going to do that, because it will very likely have long-term benefits for the whole family.*

My dad and my in-laws have gone the "let's bribe the kids/grandkids to all get together by renting a house in a lovely vacation destination" route.  Those have been great, and I can totally see doing the same thing.  We can afford to do trips like that, but my half-brothers can't, so it has allowed their kids to see more than their own little corner of Texas/Colorado.  And frankly, it has pushed my own comfort zone into amazing stuff that I'd likely never have done on my own but am ever so thankful for (e.g., African safari).  I like the vacation option because it doesn't really inflate the normal lifestyle; it's an extra treat that is special precisely because it is so out-of-the-ordinary.


*My mom and my stepdad's first wife just did this for my stepsister.  She's a social worker with two kids whose husband left when the kids were in middle school.  They live in a pricey area, and they could barely afford a house on both salaries, so she had zero chance of staying anywhere even close by with just her own salary.  So my mom and her mom jointly gave her several hundred thousand so she could afford to stay in the same neighborhood and keep the kids in the same schools.  IMO, that is exactly the kind of thing that extra money should be used for.

Well said!


I have thought about moving to the EU and am still pursuing Portuguese citizenship as a fall back. But I have realized it would incredibly disruptive to move the kids to another country (aside from a black swan situation) so they can get some of the more social benefits of the EU. It would be much easier to use my wealth to make their experience in the USA and EU as possible.

Pay for their college, help with housing, help with childcare. Maybe I would even have my daughter take a year off work and pay her salary when a she has a baby? Who knows, but overall less disruptive than moving away from everything we know.

I am a year away from FIRE with a 11 and 8 year old. Most likely I will have more money than I will ever know what to do with when they are in their late 20s/early 30s.

[Just Joe]

Also, I very much believe in having a "village" so they are welcome to stay local for college and after. This idea of pushing your kids away is a very lonely American ideal. Our family in Portugal and in the USA of Portuguese heritage seem much happier in their close extended family units than my American side of the family they is spread throughout the USA and has to do so many things alone.

That's what I saw when I lived in southern Italy and how DW and I feel now.

We have enough space for our offspring to continue to live at home. Even enough space b/c rural for offspring to build a cottage and stay forever but they need to cover the expenses. DW and I are not highly compensated and we don't have a bottomless bucket of money. We have what we have b/c of frugality. That long slow money game.

Edited: left out very important "not" which seriously affects the context.

[waltworks]

It's interesting that everyone is dancing around the main issue: is striving under challenging financial conditions actually a desirable thing in a world where it's quite possible that your children/grandchildren won't actually need to work?

We're all taking the Protestant ethic for granted here, and it's rooted in a culture of extreme scarcity where not being able to work from dawn until dusk meant literal death in many cases.

Yet here we are on a website devoted to *not* being bound to the typical capitalist structure of work, asserting that our kids need to spend a bunch of time .... working (probably doing things they don't care for) in order to somehow become worthy of the free money we'll bestow later?

I'm struggling to unpack the whole thing but man there are a lot of contradictions there.

-W

[zolotiyeruki]

It's interesting that everyone is dancing around the main issue: is striving under challenging financial conditions actually a desirable thing in a world where it's quite possible that your children/grandchildren won't actually need to work?

We're all taking the Protestant ethic for granted here, and it's rooted in a culture of extreme scarcity where not being able to work from dawn until dusk meant literal death in many cases.

Yet here we are on a website devoted to *not* being bound to the typical capitalist structure of work, asserting that our kids need to spend a bunch of time .... working (probably doing things they don't care for) in order to somehow become worthy of the free money we'll bestow later?

I'm struggling to unpack the whole thing but man there are a lot of contradictions there.

Here's how I feel about it:
"striving under challenging financial conditions" - I would portray it as "learning to be self-reliant instead of entitled, and developing the attitude and self-discipline that will lead to success in all areas of life."
"not being bound to the typical capitalist structure of work" - IMO, it's consumerism that's the root of the problem here, not work.  Conflation of the two (i.e. working a job you don't like to earn money to buy things that don't make you happy) tends to confuse the issue
"become worthy of the free money we'll bestow later" - Such phrasing implies an effort or desire to manipulate a child's behavior when such a desire is likely not there.  I would characterize it so: if I'm going to give my children money, I want it to improve their lives.  If there's a high risk that such a gift will result in bad monetary habits, destructive behaviors, or selfish attitudes, it would be poor parenting indeed for me to follow through with such a gift.

[waltworks]

Sure, but what counts as "improving" a life?

We're somehow combining stoicism with hedonism here in a way that doesn't really make sense to me. A lot of us are FIRE and are really not doing anything useful for society, we're just seeking maximum pleasure (lots of different ways, of course) until we die.

We celebrate people here who worked a decade or two (sometimes much less) and now spend their time basically goofing off.

By this logic, being FIRE having never worked at all seems like it's even better, so what's wrong with just handing out money to your kids? Lots of people here just bum around cafes in Thailand and surf, or muck around in their garden, or spend all day going kayaking... why is it a problem if my kid graduates from college (or hell, doesn't) and then does the same thing?

Please note I'm playing devil's advocate here; I also instinctively want my kids to have a strong work ethic and just spent most of the summer making sure they learn skills/do some work. I'm just not sure my attitude makes any sense.

-W

[twinstudy]

It's interesting that everyone is dancing around the main issue: is striving under challenging financial conditions actually a desirable thing in a world where it's quite possible that your children/grandchildren won't actually need to work?

We're all taking the Protestant ethic for granted here, and it's rooted in a culture of extreme scarcity where not being able to work from dawn until dusk meant literal death in many cases.

Yet here we are on a website devoted to *not* being bound to the typical capitalist structure of work, asserting that our kids need to spend a bunch of time .... working (probably doing things they don't care for) in order to somehow become worthy of the free money we'll bestow later?

I'm struggling to unpack the whole thing but man there are a lot of contradictions there.

-W

I believe everyone needs to make her own fortune. At the core of it is evolutionary biology - we want to ensure the success of our descendants, and to do that, while we provide for them and nurture them to some extent, we also want them to be capable in their own selves - otherwise, after a few generations, the money gets dissipated.

I've always thought of money as just a points-scoring system and FIRE the reward for winning the game well; my goal is to get to my FIRE figure by my 40s, put that in perpetual trust, help my kids as much as I can with whatever maxes their attributes (thus, parental time and involvement; good education, good nutrition, and hopefully good genes) and then tell them to do the same - to ignore the money sitting in trust (which is just there for score-keeping) and to make their own fortune and then retire in the same way. It's a biological imperative, I guess.

I think it's easy enough to fire or even fatfire by your 40s that it would be somehow sad to deprive my scion of the satisfaction of doing it herself.

[jeninco]

Sure, but what counts as "improving" a life?

We're somehow combining stoicism with hedonism here in a way that doesn't really make sense to me. A lot of us are FIRE and are really not doing anything useful for society, we're just seeking maximum pleasure (lots of different ways, of course) until we die.

We celebrate people here who worked a decade or two (sometimes much less) and now spend their time basically goofing off.

By this logic, being FIRE having never worked at all seems like it's even better, so what's wrong with just handing out money to your kids? Lots of people here just bum around cafes in Thailand and surf, or muck around in their garden, or spend all day going kayaking... why is it a problem if my kid graduates from college (or hell, doesn't) and then does the same thing?

Please note I'm playing devil's advocate here; I also instinctively want my kids to have a strong work ethic and just spent most of the summer making sure they learn skills/do some work. I'm just not sure my attitude makes any sense.

-W

I dunno about the hypothetical "some people's children", but what I see in myself and my family is that we're happier when we're spending at least some time creating things and helping other people (in some fashion).  And I think understanding that you are capable and can support yourself and do all the adult things is a really important milestone for a young adult. How actually happy are those folks bumming around Thailand with nothing to return to? Are they doing anything except satisfying their next hedonistic urge?

That said, we've told our kids "we have enough money that you can do just about anything, but you can't do nothing." And they've gotten a similar message from other adults they respect: "make something better, even if all you can do is plant a single flower" is a family motto (from before me).

[reeshau]

I think there is a lot summed up in the proverb shirtsleeves to shirtsleeves in 3 generations.  Money can be squandered much more rapidly than it is generated.  If my children don't develop some skills and self awareness, then their descendants either will also be missing those skills, or might not even benefit from the assets I plan to leave for them.

That is all inward looking--selfish.  I also want my children to contribute to the world around them, not simply live off of it.  When I see overconsumption or entitled behavior around me, it disgusts me.  I do not want my children to exhibit those behaviors.  Beyond that, it is up to them how to express themselves.

[waltworks]

Sure, but you can just give each kid a lifetime stipend sufficient to pay for food and housing in a moderately desireable area, index it to inflation, and let them do their own thing. If they want to work a minimum wage job and smoke pot, or if they want to be a PhD scientist, they're being them, right?

You don't have to just hand them $10 million and walk away.

-W

[Raenia]

How much money are you expecting to have to give to your kids? I plan to retire at the point where we have enough to support ourselves for the rest of our expected life, but certainly not enough to establish generational wealth. Not to mention, we're going to need most of that money for ourselves until we die. We won't be giving our kids millions, and if we do manage to do better than expected, most of that money will come to them later in life. It's one thing to offer a modest amount as a house downpayment, or pay for their college without debt, or some other boost to help them get going, but it's quite another to have the kind of money to support them indefinitely.

Who here is planning to retire with 10 million dollars, much less 10 million that they don't actually need to support themselves for the next several decades?

Given that I won't be giving my kids enough to support themselves forever without working, better that they learn to be self-sufficient early, when they're still figuring life out, instead of in their 30s or 40s when they're set in their ways, less able to learn new things, and less likely to be able to start a career. (Not that plenty of people don't start careers later in life, but it is less common.) I'd much rather they be accustomed to supporting themselves, and offer help in ways that increase their opportunities, not support their base lifestyle.

[Laura33]

We celebrate people here who worked a decade or two (sometimes much less) and now spend their time basically goofing off.

By this logic, being FIRE having never worked at all seems like it's even better, so what's wrong with just handing out money to your kids? Lots of people here just bum around cafes in Thailand and surf, or muck around in their garden, or spend all day going kayaking... why is it a problem if my kid graduates from college (or hell, doesn't) and then does the same thing?

Because it's pretty likely that none of us here will have enough money left to enable our kids never to work a day in their lives.*  I want my kids to work for what they get now, so that they can learn the habits that will allow them to manage whatever amount of money comes their way in the future.  Money management is a key life skill, whether you're working a minimum-wage job or inheriting $3M. 

But even more important than that: I want my kids to learn that you get out what you put in.  Satisfaction in life comes from challenge and growth -- from facing something hard, throwing yourself into it, sometimes failing, persevering, and ultimately coming through the other side.  Most of us learn that because we have to, i.e., by figuring out how to get ourselves educated and make a living.  I mean, really, if someone had handed you $10M when you were 18 yrs. old, would you have immediately thrown yourself into a challenging Ph.D program, or volunteered for an important cause 60 hrs/week, instead of jetting off for a month in Thailand?  I sure as hell wouldn't have -- I'd have been out buying a convertible before you could say "holy shit!"

IOW, "being FIRE having never worked at all" may seem like it's even better, but it's not.  At least for most of us.   I am lazy AF.  I needed an external force (poverty!) to compel me to work my ass off on hard shit, so that by doing so I could learn that pushing myself to learn the hard shit is actually the way to long-term satisfaction.  Without that experience, I'd absolutely have frittered away lots of time and money on trivial stuff -- and I'd be a lot less happy now as a result.  And I wouldn't be winding down toward retirement with the understanding that I need to keep finding and pushing myself to do hard shit once the job is gone if I'm going to maintain any kind of long-term satisfaction.

I'm sure there is some way to throw money at kids without turning them into lazy, entitled twits.  I just don't know how to do that; I never lived that reality, and neither did my kids.  So at this point, I'd rather be a safety net than a sugar momma.


*Really, is there even such a thing as enough money to guarantee that our kids would never have to work?  The history of lottery winners going broke suggests that there is always something else out there to tempt you to blow money on, no matter how much money you actually have.

[waltworks]

I don't know, the typical FIRE person here seems to be (WAG) in their mid-40s with a couple million bucks and a SWR at 3% or so because everyone is too much of a sissy to go for 4%.

cFIREsim says in that scenario (assuming you live another 40 years into your 80s and collect some a minimal $20k/year in social security) the average outcome is a NW of $10 million, so you'd indeed (unless you have a lot of kids) have multiple millions of dollars per kid to hand out.

The problem is that if I give my 45 year old kids a few million bucks when I'm 80 and croak, it's not going to be all that helpful anymore, just like for mid-40s me inheriting a bunch of money wouldn't really change much. It would have made a big difference in terms of family planning (we'd have at least one more kid) and reduced a lot of stress 10 or 15 years ago, though, and it would not have changed anything about my lifestyle or fundamental character.

Not giving kids money when they're younger is just perpetuating this vicious cycle of all wealth flowing to more and more elderly people, too, which doesn't seem like a good thing.

I'd also question the "overcoming obstacles makes you a better person" thing, since it's not clear to me why that wouldn't mean we should deliberately make our kids lives *harder* - which is something basically nobody does.

IMO when we say most of this stuff about not wanting to give money to our kids, it's really us saying we want our kids to basically grow up like we did, or at least end up as similar people to us. That's probably evolution talking, so it would be hard to overcome.

-W

[zolotiyeruki]

Sure, but what counts as "improving" a life?

We're somehow combining stoicism with hedonism here in a way that doesn't really make sense to me. A lot of us are FIRE and are really not doing anything useful for society, we're just seeking maximum pleasure (lots of different ways, of course) until we die.

We celebrate people here who worked a decade or two (sometimes much less) and now spend their time basically goofing off.

By this logic, being FIRE having never worked at all seems like it's even better, so what's wrong with just handing out money to your kids? Lots of people here just bum around cafes in Thailand and surf, or muck around in their garden, or spend all day going kayaking... why is it a problem if my kid graduates from college (or hell, doesn't) and then does the same thing?

Please note I'm playing devil's advocate here; I also instinctively want my kids to have a strong work ethic and just spent most of the summer making sure they learn skills/do some work. I'm just not sure my attitude makes any sense.

By "improving" a life, what I suppose I mean is a combination of 1) their long-term financial condition, and 2) their personal growth/character, with the second taking priority over the first.  In no way did I intend to imply hedonism.

"why is it a problem..." --leaves out a crucial aspect: those among us who are FIRE and have the option to bum around in Thailand have typically earned it, through a combination of high achievement, self-discipline, and prudent spending.  They've spent years contributing (economically) less than they consume, and I have little resentment against their position.  On the other hand, the average college grad who is handed $10m (or whatever amount) has spent the previous 22 years doing almost nothing *but* consume.  And has little incentive for personal and character growth.

Or, put more crudely, "if my kid isn't willing to lift a finger to support himself, why should I?"  Or, "I can't care about my kid's problems more than he does." Or, "I'm not going to pay for someone to live a higher standard of living than I do."

I don't know, the typical FIRE person here seems to be (WAG) in their mid-40s with a couple million bucks and a SWR at 3% or so because everyone is too much of a sissy to go for 4%.

...

The problem is that if I give my 45 year old kids a few million bucks when I'm 80 and croak, it's not going to be all that helpful anymore, just like for mid-40s me inheriting a bunch of money wouldn't really change much. It would have made a big difference in terms of family planning (we'd have at least one more kid) and reduced a lot of stress 10 or 15 years ago, though, and it would not have changed anything about my lifestyle or fundamental character.

Not giving kids money when they're younger is just perpetuating this vicious cycle of all wealth flowing to more and more elderly people, too, which doesn't seem like a good thing.

I'd also question the "overcoming obstacles makes you a better person" thing, since it's not clear to me why that wouldn't mean we should deliberately make our kids lives *harder* - which is something basically nobody does.

IMO when we say most of this stuff about not wanting to give money to our kids, it's really us saying we want our kids to basically grow up like we did, or at least end up as similar people to us. That's probably evolution talking, so it would be hard to overcome.

Here are a few counterpoints:
1) When we were young parents and newly-graduated from college, life was waaaaay cheaper than it is now that we're in our 40's with several teenagers in the house.  That extra money would be *quite* helpful.  Perhaps you were in a different position in your 40's, but if I came across a couple million, I'd probably be retired immediately.  To me, it would change a LOT.
2) It's not necessarily about when you might give your kids money, it's about their trajectory.  If my kid has his head on straight, is working hard at his job, and is saving for retirement, then I have less hesitation than if he's bought a boat on credit while living paycheck-to-paycheck.
3) There is tremendous psychological value that comes from overcoming obstacles.  The connection between personal effort and personal reward has incredible impact.
4) I dunno about you, but we absolutely *do* make our kids' lives harder than they have to be.  That's why they have chores, share bedrooms and bathrooms, and occasionally have meals they don't like.  It gives us a chance to teach attitudes they can apply when facing hard situations in the much-less-forgiving outside world.
5) I don't want my kids to grow up like me.  I want them to grow up to be BETTER than me.  That means that I try to teach them to emulate some things I've done, and avoid making the same mistakes.