We consult with many couples who, through hard work and careful spending, have estates which allow them to help their children and grandchildren by giving them gifts of money now and by making generous provisions in their estate plans. In most cases, these couples want to be ‘fair’ to their family members but they also acknowledge that the needs of their children and grandchildren vary. Some need money now to pay for summer camp for their children, a down-payment on a house, college tuition, a new car or a wedding. Some are doing great and don’t need help from grandma and grandpa right now.
It’s true there are other considerations as well. There may be a family member who is using drugs or has a gambling problem – how do you treat him/her fairly? It’s also true that we sometimes just like one grandchild better than another – do you have to be fair to all?
Here are some thoughts on how to be generous and wise.
First, make sure you are not so generous with others that you run out of funds for yourself. Before you give away anything, make sure your budget for the future is sound and that it includes a way to pay for long-term medical care. Regardless of how well you are today and how long your own mother lived without assistance, it’s a real possibility that one of you will need care in a nursing home at some time in the future. If you fail to anticipate those costs, all of your generous gifts today may come back to haunt you and your family in the future.
Second, beware of taxable gifts. There’s no limit or reporting requirement for payments made directly to medical and educational institutions for health care expenses and tuition for others, but other gifts to an individual in excess of $14,000 (in 2017) per year must be reported on a gift tax return. (Two grandparents together can give up to $28,000 per recipient per year.)
Giving gifts and being fair
With those caveats aside, it’s fun to make wishes come true. As you write checks, we encourage you to be clear with yourself and your loved one about whether the money being offered is a gift or a loan. If you expect to be repaid, put that down in a letter or something more formal like a promissory note to go with the check. If you plan to give this child a little less when you die because of today’s generous gift, you should talk about that with your child, too. Sometimes, when it is time to read the Will, the kids forget about the honeymoon you paid for or the braces their child wore on your dime. Another caution here, don’t assume that such gifts will remain private. Kids and cousins talk. It’s better to assume that at some point in time, your children and grandchildren will share stories about you and these things will come out.
Which leads to the question of being fair. Fair does not mean equal. It’s your money and you can give more to your favorite daughter and less to your loathsome grandson. But, make sure you are not setting up a feud among your family members which will become your unhappy and unintended legacy. If someone is getting less when you die, because they got more while you were alive you may want to state that in the Will.
If you are reluctant to leave money to a child or grandchild who is reckless with money, an attorney can help you create an incentive trust to allocate an inheritance when the child or grandchild achieves certain milestones. Those milestones can include earning a college degree, saving a certain sum of money, working for the Peace Corps, buying a house or being drug-free for a period of time – anything you want.
Finally, if you want to make sure that a young recipient does not make frivolous decisions by coming into money too early in life, your attorney can set up a trust which releases funds at certain ages: 21, 25, 40, for example.
If you have children and grandchild, we encourage you to talk to your children about your plans, so your desire to be generous with your grandchildren is not seen as undermining your child’s authority with his/her children. We know of a case where a woman left her teenage grandchildren generous sums of money when she died. One got married against her parents’ wishes and bought a house with her new husband. The marriage quickly fell apart and the young girl was left with a mountain of her husband’s debts.
If you want to be generous with your family while you are alive and when you die, we encourage you to work with a qualified professional as you share the wealth. There IS a way to make everyone happy and secure.