This article was originally published in July 2021 and updated in February 2026 to reflect current information.
It’s highly common for our clients with children, grandchildren, and other family members to direct their assets to things or activities that will help those family members financially. Allocating portions of your legacy and offering financial assistance can make a lifelong impact on your loved ones. So, how and when should you get started, and what do you need to consider?
When to Gift Money to Your Kids
Financial gifts are a significant way to ensure your family’s security and comfort. However, assessing the right time to make those gifts is crucial. Cover your needs first so that you won’t compromise your retirement savings or tax and financial standing. Then, work with a financial advisor to understand how your gift may impact your taxes and overall plan. Because gift tax rules and exclusion limits can change over time, it’s important to confirm the current thresholds before making significant transfers.
Many people arrange to have their gifts made after they pass away, but some experts advise otherwise, simply because you don’t get to enjoy the act of giving the gift! If you’re covered financially, giving a gift in person can be very rewarding.
Gifting during your lifetime can also be an important component of a broader wealth transfer strategy. Coordinating lifetime gifts with your estate documents, beneficiary designations, and long-term tax planning can help ensure your generosity aligns with your overall legacy goals.
If you would like help evaluating how your current gifting approach fits into your long-term plan, our complimentary Beyond the Will Checklist can help you identify important planning gaps and opportunities.
Should You Help Pay for College for the Next Generation?
It’s no secret that college tuition is skyrocketing and student debt is following suit. Investing in financial assistance can go a very long way. Here are a few options:
- 529 savings plan: Earnings generally grow tax-free when used for qualified education expenses. In some states, contributions may also be eligible for a state income tax deduction or credit. Funds can typically be used for tuition, books, supplies, and certain living expenses. Current rules may also allow limited use of 529 funds for K–12 tuition or student loan repayment, subject to applicable requirements.
- Education trust: You can establish a trust in your beneficiary’s name, fund it with assets, and set terms for how and when those funds may be used.
- Direct tuition payments: Even if the student is not your dependent, you may make tuition payments directly to an educational institution. When paid directly to the school, these tuition payments generally do not count toward the annual gift tax exclusion or reduce your lifetime gift and estate tax exemption. This exclusion typically applies to tuition only, not room and board or other expenses.
Because tax laws can change, it’s wise to confirm current rules before implementing any strategy.
Should You Help Fund the Next Generation’s Home?
While the impulse to do so may be there, remember that you need to cover your own resources first. Consider these options:
- Cover the down payment: The common rule of thumb is that buyers should make a 20 percent down payment to avoid Private Mortgage Insurance (PMI)
- Co-sign the mortgage: In order to responsibly consider this option, honestly answer these questions: Am I in a position to take on this loan if my family member can’t make payments at some point? Are they responsible enough to make on-time payments? Do I trust them? If the answer to any of these is no, don’t co-sign.
- Become a landlord: If you purchase the home and rent it out to your family, you can assist their budget and use the rental income as you see fit.
- Or not: Keep in mind you are under no obligation to provide this type of financial assistance. If you are on the fence, this is a good thing to talk about with your advisor.
Should You Help Pay Down a Family Member’s Debt?
It’s hard to witness a loved one struggle to keep their head above water. Stepping in to help with their finances may feel like the right thing to do, but it’s not always wise. First, assess if you’re in a financial position to do so. If you’re not, consider assisting in other ways. If you are, and you trust the recipient, you can help by:
- Giving a cash gift: Remember the annual and lifetime exclusion amounts if you want to avoid filing a gift tax return.
- Creating a personal loan: If this seems like a viable option, be specific about repayment terms (i.e. a schedule, interest rates, penalties for late payments or failure to pay in full).
- Giving non-cash gifts: If you want to determine the way your recipient uses the funds, there may be a variety of options, including paying the debtor directly.
- Or not: If you are not inclined to help in this manner, that’s perfectly acceptable as well.
Note: We recommend meeting with your financial advisor if you’re considering a personal loan.
Gifts to Consider Now While a Family Member is Expecting
Do you have a child, niece, nephew or grandchild on the way? If so, there are many options that offer financial security:
- Create their first savings account: With a high-yield savings account, their money will grow and grow until it’s time for them to make a sizable purchase.
- Gift them stock: Purchasing stocks in their name can lead to substantial rewards later on.
- Set up a 529 savings plan: With lump-sum or regular deposits, you can help them avoid or alleviate the burden of student loan debt.
- Establish a trust: You can determine how and when they receive the assets, outline specifications to receive those funds and designate certain protections.
- Open a UTMA account: A Uniform Transfer to Minor Act account functions like a bank account, but the funds cannot be accessed by the child until they’re 18 or 21 years old, depending on the state.
Need a Financial Advisor?
If you’re in a position to give any kind of gift or assistance to the next generation, simply call your financial advisor or Carnegie Investment Counsel for a consultation. Bring your ideas and specifications, and let the financial pros help you set your loved ones up for a lifetime of security and success.
This commentary is for informational purposes only.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.
