Carnegie Investment Counsel Blog

You Can’t Take It With You: When and How to Help the Next Generations Financially

Posted by Carnegie Investment Counsel on Jul 29, 2021 2:00:00 PM

You Cant Take it with You July blog

Living Well With Wealth Series 1 of 3

In this first blog post in our Living Well With Wealth series, we discuss giving money to family. Next in the series, we offer insights into charitable giving.  

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. For all of the information below, keep in mind the annual exclusion amount and lifetime gift and estate tax exemption amount: 

In 2021, individuals can give up to $15,000 per person, per year ($30,000 for joint filers) before having to file a gift tax return (IRS Form 709). Individuals who make annual gifts beyond $15,000 will have to file IRS Form 709, but simply reduce their lifetime gift and estate tax exemption of $11.7 million by the amount above the $15,000 exclusion. Individuals only pay gift tax once they have exceeded their lifetime exemption of $11.7 million. 

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.


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: This account grows tax-free. In some cases, contributions are state tax deductible up to certain limits, and if used for qualified expenses, withdrawals are tax-free as well. Funds can be used for tuition, books and supplies, and some living expenses for students. If there are funds leftover after graduation, the student can withdraw up to $10,000 to pay down student loans.
  • Education trust: You can establish a trust in your beneficiary’s name, fund it with assets and set terms for the beneficiary to follow in order to receive them.
  • Direct tuition payments: Even if the student isn’t a dependent, you can make direct payments to the institution, which are NOT counted toward the $15,000 annual gift tax exclusion or $11.7 million lifetime exemption.

 Note: There are some caveats to consider when it comes to Free Application for Federal Student Aid (FAFSA) eligibility, so you’ll want to ask your financial advisor about the details.


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.


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.

Book an Appointment




Topics: Financial Planning, Investment Management, Wealth Management, Retirement Planning

Carnegie Investment Counsel

Written by Carnegie Investment Counsel

Carnegie Investment Counsel is an Registered Investment Adviser (RIA) providing personalized financial guidance to help you preserve and grow your wealth, so you are freer to enjoy your life. As your fiduciary, we are obligated to place your investing success ahead of our returns.

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