gifting with a warm or cold hand

[LivingAlmostLarge]

Something that I read on the bogelheads forum that I thought interesting. Gifting with a warm or cold hand. Warm hand - when alive and cold hand - after death. Looking at giving your heirs money before death or after. But the nuance asked was what would happen if you were helped not just before death but early. If you were gifted in your 20s and 30s and the impact of the gift.

An example given was $250k at 30 or $500k at 55. Or even $25k at 30 or $50k at 55. I chose the gift at 30. I think for us it would have made a substantial difference in our life financially. I also don't think it would have been detrimental to our saving and spending habit.

This question lead me to think would and could I help my kids earlier? I think I already have. Because of a friend I chose to not invest all our money into college funds. We have 529, ESA, and UGMA accounts. It's 1/3 taxable and 2/3 college funding. It was suggestd what happens if my kids don't go to college from the friend? One of her children didn't so she said she always told people that if you wanted to save for your children was there a big difference between taxable or college savings?

My thought process because of it was to hedge my bets and start splitting my savings. Anyway the kids because of it have a pretty good amount in their UGMA accounts which means they are going to have potentially a nice sum of money if I don't use it for college. Right now the plan is to use it for college, but we have 5 more years and I'm hoping that we could cash flow college, I don't know.

But if things work out then I think I'd like to gift each kid the maximum each year into their taxable accounts. My thought is to tell them that money is their backstop. They should keep it for the future and know it's there. I think they might. But who knows.

We've never gotten any money from either side of parents for anything, house, wedding, car. We had help in college, but have been completely self sufficient since and I had small loans in undergrad and DH had a graduate school loan. We had car loans and mortgages. Our parents when we were 22 they were between 45-50 (our ages) but not in the financial position to help us. Then they retired by 55 and I'm guessing not secure enough. Now at 71/72/73 they are in a position to help us but don't and we don't ask.

But I'm pretty sure DH and I will be different. It could also be we already are having managed to save for our kids instead of cash flowing college and not being as far behind. It's a very interesting thing to be looking at my kids balance sheets and thinking I wonder if I can preserve what I've saved and still manage? Can we actually gift with a warm hand.

[kork13]

I'm doing fairly similar to you for our kids. Each has a healthy 529 account that I'm hoping will cover at least 50-75% of their college (or other education/vocational training) costs. I'm also slowly building a UTMA account for each one, though though not alot going into those right now (just $30/mo each, vs. $120-$180/mo to each of their 529s). Once DW starts working as a PT, I expect that we'll likely have enough income to accelerate what we put into their UTMAs. My hope is that the 529s mostly cover their educations, and the UTMAs can cover a car, or maybe even a house downpayment. Nothing outrageous or extravagant, but enough to start them off on a solid foundation.

From my viewpoint, the 2 greatest financial gifts I received was (1) a full-ride scholarship to a great college; and (2) parents & especially a mentor who taught/encouraged me to start saving/investing early, which I started in earnest during my junior year of college (age 20). Without any student debt & a solid career to jump into, my finances were easy to manage, and I had plenty to throw at investments. Timing helped, since the markets crashed as I was graduating college, so I scooped up shares on the cheap for years as markets slowly recovered. With those savings/investments, I was able to buy my first home, pay it off ~6 years later, then turn it into an income producing rental. Now, we're sitting pretty at age 37 with something like $1.5M in assets, a strong income, and the likelihood of 2 military pensions in a handful of years.

So my goal is to enable similar opportunities for my kids. Set them up so that they can start into their chosen careers with no debt, an education in smartly managing money, and a small kitty for them to get started with. So I totally agree with you, LAL -- a small financial gift (and/or advantageous circumstances) in a person's 20s/30s is far more impactful than a large gift later in life, after all kinds of other habits are already set in stone. Gifts later in life may still happen as well, but getting our kids setup early is far more important to me.

Caveat: All of this assumes that DW & I remain in good financial/mental/physical shape ... it wouldn't do any good to make my kids wealthy in their 20s but then stick them with a burden of caring for us afterward.

[ua_guy]

I think if you can, you should. Only you know or can feel if you children are deserving and how a "warm" gift would better their lives.

The gift I received from my parents was having my college education and expenses paid for. They were generous towards me in general as a kid. In return, I brought home excellent grades, set goals, and was generally a good kid, and finished things I started. Upon graduation, I quickly moved out and was self-supporting and have never asked nor expected anything from them, ever since. I've planned my finances and retirement to never expect any money from them in the future or when they pass. Would I love to receive a warm gift? Of course! It's something I'd set aside and hold on to until after they pass, first making sure they were taken care of.

[disneysteve]

Copying the answer I gave at the ER site:

I've seen a lot of articles talking about the high percentage of people who still provide financial support for their adult children. This was also discussed back in the classic 1998 book The Millionaire Next Door. One commonality of the millionaires they interviewed was that they were not providing any significant financial support for their adult children.

There can be a fine line between "support" and "gifting" and it will really vary case by case. Only you can determine if giving your kid money early on will help or hurt.

My mom gifted us 10K toward our down payment when we bought our house in 1994. I was 29. We were buying a house that was well within our means (1.5x income) but putting down 20% at that point in our lives wasn't realistic and her gift allowed us to do that. I'd be happy to do the same for our daughter if the situation arose because I feel she is very responsible with her money and giving her that boost would only strengthen her position.

If we decide to gift her money while we're alive, it would have to be that sort of situation where the money was going for a specific purpose. We wouldn't just give her 50K or 100K to do whatever she wanted to with it.

My mom still gives us monetary gifts from time to time. Nothing big but stuff like a couple of weeks ago my wife bought some new clothes and my mom gave her $100, or if we're going on vacation, she'll give us a couple hundred to spend on something special. I'd be fine with doing that for our kid, and we have done that.

[bjl584]

I don't have children, so this isn't something that I think about much, but I have never been the recipient of a "warm" gift from my parents. My dad never had much, but my mom is remarried and is of multi-millionaire status. If a warm gift would come about, then it would be from her. But, nothing yet. From brief conversations on the subject, it sounds more like I will receive an inheritance post mortem. Although, the details of that have never been laid out.

[kork13]

I don't have children, so this isn't something that I think about much, but I have never been the recipient of a "warm" gift from my parents. My dad never had much, but my mom is remarried and is of multi-millionaire status. If a warm gift would come about, then it would be from her. But, nothing yet. From brief conversations on the subject, it sounds more like I will receive an inheritance post mortem. Although, the details of that have never been laid out.

Even though you don't have kids, I'd say the topic is still relevant to you -- considering what your intentions are for your assets, knowing that it's not for a child's inheritance. To a charity or university? A friend or sibling? It's a similar decision of do you give away some of those assets during your lifetime, or wait for it to be handled upon your death? Of course, getting buried with stacks of $100s in your casket is always an option ....

[myrdale]

Of course, getting buried with stacks of $100s in your casket is always an option ....

Typically the family is gone before the dead are fully interred around here. Good day to be on the cemetery grounds crew.

[Jluke]

Gifting with a warm hand is also a strategic tax plan if done within IRS limits and lifetime gifting limits

[Like2Plan]

"This question lead me to think would and could I help my kids earlier? I think I already have. Because of a friend I chose to not invest all our money into college funds. We have 529, ESA, and UGMA accounts. It's 1/3 taxable and 2/3 college funding. It was suggestd what happens if my kids don't go to college from the friend? One of her children didn't so she said she always told people that if you wanted to save for your children was there a big difference between taxable or college savings?

My thought process because of it was to hedge my bets and start splitting my savings. Anyway the kids because of it have a pretty good amount in their UGMA accounts which means they are going to have potentially a nice sum of money if I don't use it for college. Right now the plan is to use it for college, but we have 5 more years and I'm hoping that we could cash flow college, I don't know."

This is kind of off topic, but I was wondering if the new rules that permit rolling over leftover funds from your children's 529's to your children's Roth's change any of your savings plan?

https://www.fidelity.com/learning-center/personal-finance/529-rollover-to-roth

[kork13]

This is kind of off topic, but I was wondering if the new rules that permit rolling over leftover funds from your children's 529's to your children's Roth's change any of your savings plan?

https://www.fidelity.com/learning-ce...llover-to-roth

Wow! I somehow missed that (or forgot about it) in all the SECURE/SECURE 2.0 talk of the last few years. That's an awesome opportunity. Personally, makes me far more willing to risk over-funding their 529s. Of course, we don't know 10 yrs out how much (if any) our kids will need going to college .... But that's definitely a great option to have available. Fantastic way to kickstart a kid's retirement savings.

[LivingAlmostLarge]

Yes it made me more willing and hopeful to over contribute to their 529.