351. How to Gift Money to Your Kids Without Tax Problems

Giving money to your children can be an incredibly meaningful way to support them while you are still here to see the impact. You may want to help with a home purchase, pay for college, support a growing family, or begin transferring wealth before it eventually passes through your estate.

However, the biggest risk is not always giving too much. Problems often arise when parents give the wrong asset, at the wrong time, without the right documentation or legal structure.

In this episode of A Wiser Retirement® Podcast, Senior Financial Advisor Shawna Theriault, CFP®, CPA, CDFA® and Estate Planning Attorney Arun Gupta explain how to give money to your children in a way that is generous, intentional, and less likely to create tax or family complications.

Related Podcast Episodes: 

Ep 346. Estate Planning Coordination: How Your Attorney, CPA, & Financial Advisor Work Together

Ep 314. The Simple Estate Planning Error That Could Hurt Your Family

Related Financial Education Videos:

Piggy Banks to Paychecks: How Kids Learn About Money

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Transcript

The Hidden Risk In Gifting

SPEAKER_03 0:00

Most parents think the risky part of giving money to their kids is giving too much. But the bigger risk may be giving the wrong asset at the wrong time in the wrong way with no paper trail. Stay tuned to learn how to gift money to your kids in a way that is generous, intentional, and less likely to create a mess later.

SPEAKER_02 0:16

Welcome to a wiser retirement podcast, where we cut through the noise and bring you real, honest conversations about investing, retirement, and building lasting wealth. No sales pitches, no gimmicks. Just insights to help you stop guessing and start planning your financial future.

SPEAKER_03 0:36

Welcome to a wiser retirement podcast. I'm Shauna Therrialt, and today I'm joined by estate planning attorney Arun Gupta. Today we'll be discussing how to gift money to your kids without tax problems. Exciting. Exciting, yes. I actually have been getting this a lot and talking about gifting to kids. And I don't know, I don't know if it's the great wealth transfer and clients are getting inheritances and they're wanting to. I feel like more and more clients are wanting to gift money to their kids.

SPEAKER_04 1:05

I think kids may need it more these days than maybe they did back back in the day.

SPEAKER_03 1:08

Well, that's true. Cause it's like, you know, everything's cost more money. And it's like, I don't, but clients are saying things like, I want to see them enjoy it now versus that when I'm not here anymore, or you know, they inherit it when they're like 70s or their 60s and they don't really need it as much, you know.

SPEAKER_04 1:25

They think they don't need it as much.

unknown 1:26

Yes.

SPEAKER_03 1:27

Exactly. Exactly. So I, you know, I just feel like it's more and more, and I think there's a lot of misnomers, but we talk about this a lot and we'll go through different things, but there's different ways to gift and ways that can help with taxes or just smarter ways to gift. Um, and so we can talk about all of that. Um so I I think typically, you know, where we're seeing, I feel like there's, you know, just gifting cash over the exemption, which we'll talk about, buying homes, doing loans, like ways to structure things. So I really want to get into all of that.

Annual Gifting Rules Made Simple

SPEAKER_03 2:04

Um, I think the first thing is, you know, you can gift annually 19,000 per person per year.

SPEAKER_04 2:11

Yes, per person per year. Um, an individual can give it either to a person, uh, if you're a married couple, it's it's double that. Um if you give it to a trust that counts as a different entity.

SPEAKER_03 2:26

Right.

SPEAKER_04 2:26

Um, and and uh that annual exclusion. Um I think it's been 19,000 for the last two years. Um and you know, we'll see where it goes.

SPEAKER_03 2:34

Yeah. So basically it adjusts for inflation each year, and they round it out to the next thousand when it gets above, I guess, the 500 mark. Um, and so that's what's been happening. And so to your point, you can give 19,000 a person. And so, you know, and what that means is I can't, you know, you can write 19,000 to one child, one child and their spouse, their kids, et cetera. Um, or you can gift split with your spouse too. So you can actually give more. And so I think, you know, we're this is where some confusion is too. It's like, okay, what about like when they're in college and you're paying for their stuff and it's like, okay, but I mean, I guess that's support. That's not really gifting to them. So it's more like you're paying for their food, you're paying for their stuff, you're all of that stuff, right? Too.

SPEAKER_04 3:19

Yes. And then it also how you're paying for it, also. Um, and to what, you know, if you give somebody cash and then they turn around and do something with it that's not probably not going to be as clean as if you are using that for a direct expense. Right. Um there's a lot of ways to to do these uh in in clean ways that that are not complicated, um, which, you know, in turn will save a whole lot of complications down the road.

SPEAKER_03 3:45

Yeah, yeah. And so so then it's like, okay, what if you want to gift? So this is what we talk about sometimes too, and we'll just get it out of the way in the front end. It's like, okay,

Lifetime Exemption And Form 709

SPEAKER_03 3:54

you can gift 15 million a person during your life. Uh-huh. Right. Or 15, a person has 15 million they can gift either through the estate or gifting, you know, through death or through gifting through their lifetime, et cetera. So even if you give somebody more than $19,000, that doesn't mean it's going to be taxable. It just reduces your $15 million.

SPEAKER_04 4:16

Yes, that's right. And, you know, if you if you cut someone a check for $20,000, uh, that's $1,000 over the annual limit. So uh what you would do uh would be file a gift tax return and and you're using $1,000 out of your $15 million lifetime exemption. Now that that's pennies uh when it's $15 million. Now it's it hasn't always been $15 million. And uh the the estate tax exemption has gone uh up and up and up for the last 25 years, uh doubled um when when Trump became president in 2016 and now it's it's permanent. Um so right now, you know, that's not really a zone that that most people are going to approach. However, we don't know what it's gonna be like in 20 years, in in 30 years. Uh, you know, they could the exemption could be reduced to a million dollars, right? And that's when some of these gifts now may have some more consequences than. But generally speaking, most people aren't using that number um to to to guide them w with their gifts. But um, you know, what what what they're doing um is just writing the gift and then not thinking about it. And and and that can that can create problems. And the way you do that, what assets you give, there's there's uh a lot of layers to it.

SPEAKER_03 5:35

So if somebody goes over the 15 million, which most people would not, then it becomes a taxable gift immediately. Correct. And the recipient doesn't pay that, the person paying giving the gift pays that.

SPEAKER_04 5:46

That's right.

SPEAKER_03 5:46

So in other words, if you're gonna give them $17 million because you're using your $15 million and two millions above, then the gift or is the one paying the 40% on the above the $15 million.

SPEAKER_04 5:58

That's right. If it's if it's during your life and you you're the you're the donor, you're gonna take the tax hit. If it's after you die and it's through your estate, your estate would would pay it um before your your your beneficiaries go to the city.

SPEAKER_03 6:11

And again, most people are not in that situation.

SPEAKER_04 6:13

But most people aren't, but no. Again, we we we don't know what'll happen. Um and and estate tax planning was was you'll I see a lot of documents now where you know clients sign their wills and trusts in you know mid-2000s, um, where the exemption was a little hazier and it affected more people, right? So um generally speaking, um making a gift and and filing your your your 709, your gift tax return is not that complicated. And if you've got right now, you got a whole lot to play with, uh $15 million. Um if you are gonna give a a large gift, uh you should you should think about well, you should file it anyway. Um, but there's other benefits to to to filing it and keeping things clean. There's um, you know, there's a if you report it and nothing happens with it, right? That then then it's the IRS is not gonna go back and look into it, right? If you know, give a million dollars right now and don't do anything about it, don't report it 10 years, 15 years later, that that comes can come back into play.

SPEAKER_03 7:18

Right, right, right. So I mean, I think the biggest thing when I hear as a financial advisor or planner, when I hear somebody say they want to do gifting, it's like, okay, how does that work with your plan? I want to make sure that the client has enough money. Yeah. So it's like if you start seeing that there are projections and you're running and it's like, you know, they're gonna potentially have. So there's a couple, it's twofold. It's like you have excess that you could spend more, but you're not. Uh-huh. So that could be used for, you know, future healthcare or gifting or whatever. Or if if I'm running projections and I say, ooh, your state is projected in 20, 25 years, 30 years to be above the exemption, maybe we should start gifting now to start thinking about reducing your future assets so it grows out of your state. So it's kind of twofold there. Um, and then some I I would say most clients just want to give money to the kids to help them out and to see them use it. And it's like, you know, when they're younger and they're raising a family that, you know, doing things like that, you know, it's it's having them to see it, them enjoy it. They like to do it that way. So one

Down Payment Help Gift Versus Loan

SPEAKER_03 8:19

of the common things that I see, you know, individuals want to do is help purchase house.

SPEAKER_04 8:26

Uh-huh. Oh, that's the most common one I see with gifting.

SPEAKER_03 8:28

So it's like, okay, that's complicated. It could be complicated. It's like they come up with, it's like, okay, what if we both put money in and then I don't really want my client's name on the house when you're doing that because there's liability issues and stuff. So it's kind of like, okay. So I guess, you know, how how do you think it would be structured best? And of course, obviously it depends on the client, if they're wanting to say, hey, you know, my my son or daughter wants to buy a house for $400,000. You know, how can I help with the down payment if the limit's like 19? Or where do you normally see? I'm assuming it's with the down payment and things like that.

SPEAKER_04 9:05

Exactly. It's it's it's usually with the down payment. And, you know, at the at the core, it it really depends on is this a is this a gift or is this a loan? Are you expecting uh uh, you know, maybe they don't have liquid funds? Are you expecting to get this back at at some point? Or are you saying, listen, here you go. Um, here's a gift. Well, that is the first part, right?

SPEAKER_03 9:26

Well, and that's the hard part too. And I'm not trying to get in depth with purchasing a house, but if you go to buy a house and you're getting money from your parents for a down payment, it has to be a gift.

SPEAKER_04 9:35

That's a gift.

SPEAKER_03 9:35

And it has to be signed off on that this is a gift and not repayable because if you're trying to get a loan, that's right. You can't, you know, through through a bank, you can't say that this it has to be a gift. And so if you're signing off, it's a gift.

SPEAKER_04 9:47

And then, you know, if you you could do a lot of family loans, right? Right. You want to structure it. So, you know, if you're giving $100,000 to a child and you want to give them a good tax rate and you don't care when you get paid back, but you do expect to get paid back, you can do a long-term promissory note at the lowest allowable rate that the IRS allows. They publish tables every month uh for a short-term loan, a midterm loan, a long-term loan. Um, and then you're gonna get that income and it's gonna be taxed. And you have to claim it. Yes.

SPEAKER_03 10:17

Because that's a legitimate loan then.

SPEAKER_04 10:18

Yes. Um, so there's, you know, there's wrinkles to it. But if you don't, if you do not expect to get paid back and you are completely fine, you know, giving it as a gift, you can give your gift and you can file uh, you know, your 709 and use your uh uh whatever is over $19,000, uh, the excess and take it out of your lifetime exemption and and in in a way, set it and forget it, depending on, you know, if you've got multiple kids, then that comes into play also, evening things out.

SPEAKER_03 10:47

If you want, you don't have to. Yes, yes, that's right. If you feel like I did this for one and you know, I want to make sure that it's equal for the other.

SPEAKER_04 10:54

Yeah. And you know, that that does come in. Most of the clients that the that I see do want everything to be you know as equal as possible to the kids. And when it's a a substantial gift, they wanna they wanna equalize it in a way. They can either say, you know, I gave up $100,000 uh on this date. Um, I want that to be treated as an advancement on the eventual share of of their inheritance.

SPEAKER_03 11:16

And they can reduce their share. Yeah. And then the others will still get their portion of that hundred or whatever, their hundred.

SPEAKER_04 11:22

And if you want to say, well, listen, that $100,000 gift was made in 1995 and it's worth a lot more today, right? You can put it in your documents that that figure is to be adjusted for inflation from the the date the gift was made to the date of death of of the of the of the donor. So there's a lot of ways you can qualify it. But again, it's it's always up to the gift giver, right? Right. You don't have to make it exact if that's not what you want. If you want a child to have more than the other for whatever reason at the end of the day, you're the gift giver. But having an understanding of it and documenting it, even if it is just a gift, you know, that uh that 709 with the IRS, that that's a documentation of it. You should keep it in your files, a record of of uh of what you did if it's something that that's very large.

SPEAKER_03 12:06

Yeah. And so so if you did that $100,000 gift for the down payment of the home, you obviously the lender you'd say it's a gift, it is a gift, then you could essentially report the difference. So if it's $19,000 a person, so let's say, you know, husband, wife give their son $100,000 for down payment, that would be $38,000. That is exempt because the $19,000 limit. And then the difference of the hundred and the 38 would be a reportable gift, basically. That's right. And you would just go on the $709 and it would just reduce your $15 million today that you can pass estate tax or gift-free.

SPEAKER_01 12:39

Correct.

SPEAKER_03 12:39

Um, so that is one way to do it, to just give the gift. Now,

Divorce And Liability Risks

SPEAKER_03 12:43

some things that parents have not considered. I had a client situation several years ago that um, you know, client lived in a state that had really high real estate prices, needed help, you know, purchasing a home. They were very established, you know, husband and wife out there out west and had kids and they'd been married for a really long time. So the client, our client had gifted to the husband and wife, to the son and and daughter-in-law, had gifted a large sum and just decided to go against their lifetime and gift split between the two of them. Uh-huh. But from from the mom and dad to the son and daughter-in-law. Well, interestingly enough, the house was in joint name, you know, like I said, it was a very sizable donation or gift. Then they got divorced.

SPEAKER_04 13:36

Yep. And that's it.

SPEAKER_03 13:38

And it's like recorded that I gifted it to both of you. It was half hers. Yep. I, you know, so it's like if you think about it, so I'm not trying to scare people, but it's like you have to think about too, if you're gifting to your son or daughter and they're married and it's joint name, you just you're it's it's it's subject to divorce potentially.

SPEAKER_04 13:58

Correct, correct. So just know all outright gifts like that. Yeah. Um, you know, if it's if it's outright, then it's it's it's out of your control completely, right? Um, you know, there could have been other ways to structure it, right? Um, if they wanted to um, you know, put it in in a trust for, you know, for for for the sun or something like that. You know, there's there's there's there's other ways to do that. You can you you can gift um to the son and to a trust for the son. It almost, you know, as another person, you can take advantage of that extra $38,000 if you want to do that too. There are um other ways to gift also beyond just for tax savings, also.

When A Trust Makes Sense

SPEAKER_04 14:39

Sometimes these trusts uh as a as a gift for a child that just may not be able to handle money very well, right? And you don't want to make that outright gift because you give cash and maybe it doesn't all go towards where you you think it was supposed to go, right? Um you could create um you know protections on that, put somebody else in charge of it.

SPEAKER_03 14:58

There's a lot of a lot of ways to gift um beyond just it's not just always about the tax, but you know, that is certainly and that's where I see a lot of the that we've talked about the trust before, like the irrevocable trusts being created, because irrevocable living trust is just an extension, it's not the same thing. But you know, if you're wanting to reduce your estate because you think that or we're projecting out of your estate's getting sizable and you want to gift, but you don't want to just leave it out right because of what I just described, or because maybe they're younger and you're not really sure, or you want to protect them, or you want to make sure it stays in the family because you want to make sure if you're doing ongoing gifts to do wealth transfer now over time and you want to make sure it stays in your lineage, you know, to your son and then to their kids, versus being subject to here, I'm gonna give it to you. And then if you leave it to your wife and then she divorces you or gets remarried, that you know, that's not it's still wealth transfer, but it may not be going to your descendants. And so if you're doing this for planning purposes of I'm reducing my estate, then that's where sometimes we set up irrevocable trusts because over time you're gonna continue doing this and you want to make sure it stays within your family.

SPEAKER_04 16:03

Yes.

SPEAKER_03 16:03

Um, there's nuances to that because it is a completed gift, it's irrevocable, just like it is to a person, but now you're filing, you know, trust tax returns. There's other things to consider if it needs to be that it can be a little more complex. Sure, but it makes sense.

SPEAKER_04 16:17

A lot of paperwork, a lot of admin work, but but you're right. You know, it's all a cost-benefit analysis, right? Uh if it's a huge savings, right? And keeping it within your family is your value system is is high on that, right?

SPEAKER_03 16:30

Yeah.

SPEAKER_04 16:32

It can certainly be worth it, right? Um, yes. It nowadays we don't see it quite quite as much with the exemption being as high. And um the there's also a a generation skipping transfer tax that uh is now aligned with the federal estate tax. It it again, 20 years.

SPEAKER_03 16:46

Meaning if you're giving directly to like a grandchild, that's right. That still goes against that. And now it's at 15 million as well. The GS it's called GSD generation skipping trust. Yes. Or tax, excuse me. Um, so that's 15 million as well.

SPEAKER_04 17:00

Correct. So there's still a a lot of room to play with um with that. But again, you know, keeping things within the family generation to generation, um, that is part of the analysis too, uh, when you are sitting down and and thinking about, you know, creating these tools. Um but again, right now, not the focus. Uh, but it, you know, it it it could be, it could be one day.

SPEAKER_03 17:19

Well,

Tuition And Medical Payments Done Right

SPEAKER_03 17:20

and there's ways around it too, where not around it, you can just spread it more than 19. And what I mean, it's like, okay, you can give 19,000 a person, but then you can do things like pay the education tuition directly. Yes, yes, that's it from you to the institution.

SPEAKER_04 17:36

Correct.

SPEAKER_03 17:37

Or for medical expenses.

SPEAKER_04 17:39

Yes, those are, you know, uh, especially um grandparents have a you know a a nest egg and and they want to help out, pay it directly to the to the college, pay medical expenses directly. Um, there's there's there's no the annual exclusion does not apply to that.

SPEAKER_03 17:56

Right.

SPEAKER_04 17:56

Um, so that's yeah, yes, that is a way to give more than the 19,000 without eating any of your expenses.

SPEAKER_03 18:01

Or just helping them with school and you know, with medical stuff. Because, you know, sometimes those things come up where that's the extra expense that medical maybe you hadn't planned on, but then helping out with school. And I know a lot of grandparents want to help with education, all of that, which helps the grandchild and their child because now the child's not having to pay for college and the grandchild's getting an education.

SPEAKER_04 18:21

Exactly. Exactly.

SPEAKER_03 18:22

So I mean that's that's a great way to do it. And you pay the institution directly and it doesn't go against the annual exclusion. That's right. The 19,000. Yes. Are there other things? I think those are the only two.

SPEAKER_04 18:32

Yeah, you can't do it for housing. So it's it's it's education. Medical expenses are the only ones where you can you can pay direct without having to again, you have to do it cleanly. If you you can't don't write a check and say, hey, pay it to the to the institution because that the paper trail is important.

SPEAKER_00 18:50

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SPEAKER_03 19:09

So

Basis Problems And Step Up Strategy

SPEAKER_03 19:10

let's talk a little bit about like the how and and what you're giving. So, you know, I have some clients who, you know, well, I would just want to give them this apple stock that's highly appreciated because you know it's it's the gains are high on it. I just want to give that.

SPEAKER_04 19:25

And so usually you you're gonna want to wait to to make that if the gift is eventually going to go to that person, uh if you give it during your life, and uh there's wrinkles with all of this, but generally speaking, yeah, if if if if you you know bought Apple stock for a dollar uh 30 years ago, uh and now it's worth, I don't know, $200, uh, and then you you give it to your child, their basis is what you bought it for. Right.

SPEAKER_03 19:55

So that gifting is whatever you paid, uh-huh. And it goes to them, and that's so if they go to sell it.

SPEAKER_04 20:00

Then they're they're gonna pay a huge gain based on what what you you know purchased it at. And um if you're gonna give it to them anyway, and you they get it when you die, and let's say it's worth, you know, $300 when you die, right? Then their basis is that very high $300 number, right? That's gonna be a much better situation for them.

SPEAKER_03 20:20

Because it gets stepped up when you pass away. And we've talked about that before.

SPEAKER_04 20:23

Correct.

SPEAKER_03 20:24

So you want to look at that. But they could be in a lower tax bracket. Maybe they, you know, they they if you go to sell it to give it to them or vice versa, they could be in a lower tax bracket. Yes. Depending on the situation. So, you know, you just have to look at that. But it's not, you know, or it's like I've seen clients where, you know, it's like, well, I don't have the cost basis for that. So I'm just gonna give it to, you know, my nieces and nephews or my kids. And it's like, well, they don't know the cost basis either. So it's new, it's a new I'm like, give that one to charity. Or, you know, if you're charitably inclined or hold it until I mean, if it if it's a garbage stock, I don't want you to hold it forever because you don't know the cost basis. We'll we'll try to substantiate and figure out what it is.

SPEAKER_04 21:00

But figuring out what it is, sometimes it can be such a headache. And this is not my zone at all. I I I I dive into it sometimes if I'm I'm helping a client, you know, talking to their financial advisor. But man, going back and figuring out basis is is is daunting to me to even hear y'all's conversations about it. But um, there's a lot of paperwork people have to sift through, and especially with real estate. Yeah. Especially with real estate, yeah. It gets it gets it gets real tricky with that too.

SPEAKER_03 21:25

Yeah. And we've talked about that before, where it's like, well, you want to gift a house to them or you know, do that. Well, you know, that that's where the cost basis stays with it, and you know, any improvements and it, you know, that's where the nuances are. Um, you know, and then equalizing the estate. And you and you always have to look at, you know, when you're when you're older and you're giving, you know, giving away assets, you have to make sure that, you know, you're gonna have enough money to live off of because if you end up running out of money and then you need care.

Retirement Medicaid Lookback And Expectations

SPEAKER_03 21:59

Yes. And you need to go to the government for help, they're gonna do that look back. Yeah. So they're gonna look back and say, in the last five years, did you give away anything? And if you did, then they may not help you.

SPEAKER_04 22:10

Yeah, you know, that's that's a that's always a tricky. I believe it's five years. I'm not I believe it's a five-year look back. It's a five-year look back. And you know it's it's if if you can wanting to make the gift is obviously uh an important part of this, but can you actually make it knowing your needs, your health situation? You know, it's your money. Um, if it can create problems for you later, you really want to sit and think about if you if you can actually do it. And not not only that, but that can get to a a larger issue of you know, someone maybe expecting gifts anytime they're in a bind, right? Um and that that you know, that's another story in a in a sense that goes well well beyond tax. Um, but you know, if if a if a child knows that they can get, you know, 10, 20, 100 grand when they're in trouble, that may guide a lot of their decision making throughout the course of their life. And you know what? That may be okay. If you're okay with that, that that then it's okay, right? But again, something to think about.

SPEAKER_03 23:11

Yeah. So many clients are like, I want to make sure that my children, you know, want to work and be self-sufficient, and then they get this extra. But you're right. We've seen it where, you know, it's like every year maybe the parent gives 19,000 as like, you know, the holiday gift or the year end gift or whatever. Um, and they almost become reliant on that.

SPEAKER_04 23:32

Oh, 100%.

SPEAKER_03 23:33

And then what if, you know, you end up being care. Right. So, you know, they become reliant and it's almost like just, you know, I don't know, maybe better just to randomize it or take them on a trip or I don't, you know, do different things so they don't expect it. It's all kinds.

SPEAKER_04 23:47

Yeah, there's even, you know, and then they know maybe maybe they're sucking up to you because they want they want to make sure that $19,000 comes comes during Christmas, right? There's a whole a whole lot of that that that um, you know, again, there's there's so many layers to it. Um but I I can't be one to say don't do this because they're gonna expect it. That that may be that may be perfectly okay.

SPEAKER_03 24:08

Right. Right, right. Especially depending on the depending on the family dynamics and the situation and you know Yes. Um, you you know, it may it may be totally fine. But um, you know, uh do you see often where you family wants to give, say, like a family business to children and how that works and the best structure for that.

SPEAKER_04 24:32

Yeah. So that's if they want it.

SPEAKER_03 24:34

So that's a lot of the kids don't even want to be in the family. You know, Casey and I have talked about that. So some of the you don't even want the family business, you know. It's like I want to do my own thing or they're not interested in that.

SPEAKER_04 24:43

Yeah, no, we that that comes up a lot too. Um, you know, absent uh, you know, if your operating agreement or your bylaws you know aren't are silent as to it, then your interest in your business is gonna go via your estate planning documents. And if a you know if a child uh has no knowledge of this business and has, you know, really doesn't want anything to do with it, you're you're also creating an issue for them too, right? Or the employees or the clients or you know, there's so much, and then they may only see it as the bottom line of now I can just sell this, right? And that may not be the best thing for what there might be like you said, employees, people's lives depend on this too, right? Structuring this ahead of time um yeah is is is is very important. And not only that, but you can differentiate in your estate planning documents that this child shares to be funded with cash or this one is to be funded with real estate. So you can you can pick and choose, you know, as best you can to you know kind of circumvent some of these problems.

SPEAKER_03 25:43

Absolutely. Absolutely. So I don't, yeah, I've seen it where um there's sometimes where you have a family limited partnership and you're gifting shares. That that's a very complicated structure also, but that is possible to, you know, be able to uh transfer assets, maybe, maybe using a little bit of a discount. Yeah.

SPEAKER_04 26:02

Um basically you're you're you're the the idea of it is that you're you're you're gifting uh partnership interests that are discounted because there's a lack of control, because it's a family business. And if you were to sell it on the open market, you're not gonna get its its true value. Uh again, it's it's most of the time it's a it's a tax technique to just uh get a bigger bang for your buck for your gifts. Right. Um but again, it it it early on is when you you know, I think that it's good to start thinking about some of these things to get it out of your estate so it appreciates if you can do it.

SPEAKER_03 26:37

Yeah. I mean, if you're if you're doing this to, you know, help your estate, gifting uh property that you think, you know, giving to your state limits, that is, you're you know, you think it's gonna grow. Gifting gifting property that you think is gonna grow over time to get it out of your estate is a good technique to do that, to reduce your overall state tax exposure. Yes. And again, when you know, when I started in the industry, I believe the exemption at that point was 500, then it went to 750, then it went to a million, etc. And it kept climbing. So um, you know, most individuals aren't up against that 15 million per person. So, you know, it's may not be as apparent. But I do, I do have, you know, many clients who want to do gifting to kids and you know, the limits, or or I see this too. I

Deeds Joint Accounts And Business Interests

SPEAKER_03 27:25

see a situation where it's like, okay, maybe a parent leaves, you know, a bank account or one asset to one child and they want to make sure that they spread it to the heirs.

SPEAKER_04 27:37

Yeah, that that yeah, that's that's usually a no-no. You're you're making you're creating you're creating problem. Now the person that is in charge of making everything equal to everybody else, they've got gift tax consequences. Exactly. And if they're on a joint account with you, it's actually not anyone else's money, it's it's theirs, and they don't have to do it. Uh, there's l lots of complications with that. And you know, people just putting someone else's name on an account or on a deed, sometimes a client will say, Oh, I five if I put my child on this, then there's no no probate. It'll just, you know, default to them. Well, one, you're creating a basis issue. Um that has some wrinkles to it, but generally speaking, you could create a a uh you know, a basis issue there too. Plus, um, I think I read a study that um uh that about 60% of D transfers were not accompany D transfers were not accompanied by a 7 uh 709 filing. So you gave the gift, but you never reported it over over half of them. I think this was probably 10 years ago in California or something like that. So the enforcement of this, again, with the IRS, it's it's not the the biggest thing. And again, um not to encourage people to do it and set it and forget it, because again, we don't know what it's gonna be like in 10, 20, 30 years. Right now, the IRS, there's there's uh they're not the most well-organized, well-run, you know, agency right now. Maybe they will be in 20 years, right? You know, and and maybe you know they'll they'll get their act together and they'll uh scrutinize these things a little bit more. And and that's you want to avoid doing things cleanly, it's almost always gonna be worth it. Yeah. And the um, you know, the the deeds, especially when you when you you put someone else on it, you are if you have got other children, going back, figuring out basis issues, it just adds so many wrinkles to it that sometimes it's easier easier, especially if they're gonna get it when you're gone, just wait.

SPEAKER_03 29:34

Yeah. Just wait to put it in your documents and not on a deed. Absolutely. So, so really, you know, other other things to think about when you're gifting, you know, we talked about divorce, um, maybe even liability. So if you're gifting assets to your kids over time, maybe to reduce your estate, um, if if they need the money, they'll probably use it fairly quickly, I would think. But they may be saving it and investing it. And this is more of a wealth transfer technique where you can reduce your estate and transfer it during your lifetime to reduce yours, and then they can turn around and invest it. Um you know, you want to think about creditor situations, divorce, death. You know, if if you're giving, you know, if you're giving to your child and they are married, even if they have it in a separate account, um, if their will says they're leaving everything to their spouse, then their their spouse may inherit it anyway. So just, you know, just be thinking about these things when you're giving and and thinking about where it needs to go. Same thing with grandkids, you know. Um, are they mature enough to handle? Are they financially responsible? Is there a way that you can transfer it to them with, you know, because you you could transfer a lot of wealth between giving to your children and then their kids and setting up specific accounts. You just want to make sure that whoever's managing it is in control of it, especially if you have minor grandkids or minor children, um, you know, that it makes sense from and and then they may have to file tax returns too. Sure. So even minors have to file tax returns. So you have to be thinking about that if you're giving money and then, you know, they have to file a tax return and things like that if they're investing it.

SPEAKER_04 31:13

Yeah, I think, you know, there's a a theme with all of this too, is that, you know, there's there's no right or wrong when it comes to all these these gifting issues, right? If you make an informed decision, if you have all of this on the table and then you do it, in a sense, I wouldn't feel bad about it, right? Because you can't predict the future. You know, you don't know who's gonna get divorced. You don't know if this person is gonna have an illness or what's gonna happen in their life. If they're in a profession where they may get sued a lot, all you can do is the best you can with the information that you have at the moment. And, you know, putting the child on a deed and not thinking about it, that's not a good decision. Even if it ends up working out, right, it still wasn't a good decision, right? It may it worked, the result may have not, you know, worked out for you, but I wouldn't, you know, I I I I think just thinking about these and and making sound decisions, talk to your financial advisor, state planning attorney, friends, family about these and and get tips on it because um these are especially these large gifts have lots of consequences for for many other people besides just yourself and beyond taxes.

SPEAKER_03 32:15

Absolutely. Absolutely. And so so know enough, you don't have to know everything, but know enough to be like, whoo should I pause for a second and think about this or what's the best way to do it? And you could always reach out to us or your advisor.

Five Questions Before You Gift

SPEAKER_03 32:27

Um, just some, you know, maybe like five questions to ask yourself if you're gonna do a gift. Can I afford this gift without weakening my retirement plan? That's a good thing, you know. And some clients decide they're gonna look at it annually to see where they are at. Interesting conversations when husband and wife doesn't agree on the gifting. That's always, you know, yeah, that that happens, you know.

SPEAKER_04 32:46

It does happen.

SPEAKER_03 32:47

And it's like, so you you kind of just pros and cons with them and kind of, you know, do the list out there. Um, number two, is this truly a gift or do I expect repayment control or influence on it?

SPEAKER_04 32:58

And that's the part that, you know, beyond loan gift, are you going to use it, you know, power over that person? Is there some sort of expectation? Be clear, you know?

SPEAKER_03 33:09

Yeah, exactly. Um, think to yourself, am I giving the right asset or am I creating a capital gains problem? Yep. So just, you know, what are you giving? Is there an issue there? Can I do this differently? Does this gift need legal structure such as a trust or a promissory note? Yeah.

SPEAKER_04 33:27

You know, if you want to protect a person from, you know, not using it inappropriately or um, you know, uh just the the mechanism for how that person gets it.

SPEAKER_03 33:36

Mm-hmm. And then and finally, you know, have I considered sibling fairness, divorce risk, creditor risk, and documentation? So I I mean, really, you know, if you're if you're looking at doing gifting, just ask those questions to yourself. You know, am I and some I mean, obviously you're just doing like a $5,000 gift, none of these questions come into play, um, other than can you afford this? Um, but you know, just thinking of these questions when you're doing this or sitting down with a professional if you're not sure of the answers, just it's really good to kind of check yourself. Just checks and balances.

SPEAKER_04 34:07

Sure. And you know, I'm not don't encourage a client to keep a spreadsheet on every single little thing they give to each of their children, but we have seen that more listen for equalization. It yeah, it it these things do add up, right?

SPEAKER_03 34:18

Well, because you may have a family that has like three kids and you're giving them more for college, and then you have one of your children doesn't have kids. Yes, and so you're just giving them 19, whereas you're giving this family, you know. So I some families get that in depth with it. It's like they theoretically need more help or they're giving to more people over here, whereas you're just giving this. And so it's like they want to equalize that in the end. Sometimes you you're not required to, but a lot of parents.

SPEAKER_04 34:43

As long as you're giving it thought, that that's what counts.

SPEAKER_03 34:46

Absolutely. Absolutely. Well, good. Anything else do you think we should add?

SPEAKER_04 34:51

Well, again, I you know, I know that the the topic is uh is about giving it without tax problems, and certainly, you know, that that is a is a huge focus, but you know, just zooming out to just um what these gifts mean, I think um is uh is really important. Uh how do you value it? How does the other person value it? What what is the expectation? And uh doing things with a a clear mind, knowing what you're doing, I think is uh I guess that applies to anything, right? But still, uh it it it goes a long way for something like this. Because I've I've seen it where it the constant gift giving almost creates tension, uh more family problems with with with other siblings also. Whereas if this was just, you know, talked about, even if it it doesn't have to be with all the kids, even if it was just one child, right? It can really help, especially as people get older.

SPEAKER_03 35:42

Absolutely. Yeah, it's like you're giving to this child and not this one, and there's just that tension. Yes. Well, thank you. It's always it's always good to have you um and your insight on this. Uh I love the dialogue. So I appreciate it.

How To Reach Us And Subscribe

SPEAKER_03 35:55

And thank you for listening to today's episode. If you're interested in learning more about wiser wealth management or want to schedule a consultation to meet one of our financial advisors, you can do so by going to Wiser Investor or you can click the link in the episode notes. Um, we've also included Arun's information in there as well. So we will see you next week.

SPEAKER_01 36:17

Thanks for listening to a Wiser Retirement Podcast. We hope you enjoyed today's episode. Make sure to subscribe wherever you're listening. That way you don't miss any new episodes. We'd also appreciate if you could leave a rating and review. If you have any questions about anything that was discussed today, head to wiserinvestor.com and reach out. This podcast is strictly for informational purposes only and is not to be considered as investment advice or solicitation to buy or sell any financial products, securities, digital assets, or any other investment vehicles, or basis to make any financial decisions. Wiser Wealth Management Incorporated is a registered investor advisor with the SEC. The host and or guest may personally own securities, digital assets, or other investment vehicles mentioned on this podcast. Neither the host nor guest of the show are compensated for their participation, and no referral fees are paid to or received by any host or guest for clients, listeners, or similar interests. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, insurance professional, andor legal professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.