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November 8, 2017

Will the Children Make It On Their Own?

Please read important disclosures HERE.

Working with your estate planning attorney, you may focus on wealth transfers and the minimization of taxes – both understandable and important goals. As part of your estate plan, I suggest that it is equally important to be mindful of the non-monetary effects of the transfer of wealth on both the giver and the recipient, and the power dynamics that such transfers create. How does one give without undermining work ethic yet promoting skin in the game and pride in accomplishments? How does one receive gifts without the money taking over a sense of purpose and making one feel guilty or dependent? Are the gifts made among family members truly free?

As parents, many of us feel compelled to give to our children. We give our love, time, energy, and advice. We often also feel compelled to give money or other property to our children even when the consequences of the gifts may not be as intended. Financially supporting children who are able to work or continually paying off a child’s debt may only enable their dependency and foster a sense of entitlement instead of encouraging their growth and independence. In fact, a parent’s generosity may sometimes interfere with a child’s grit and motivation.

As an estate planning attorney, I was often asked by my clients: “How do we give assets to our children in ways that keep them motivated for the long run?” While my answers depended on individual circumstances, I do believe that thoughtful and mindful giving can integrate wealth and opportunities positively into our children’s lives.

Funding college costs or contributing to a college-education fund may not be the flashiest present but the recipient will be forever thankful. In 2017, each person can give up to $14,000 a year to a child or grandchild without the gift counting against the lifetime gift tax exclusion. The IRS allows a person to make direct payments to educational institutions without such payments being counted as gifts. The gift of a brighter future will often be transformative.

Buying a home in the Bay Area can be a challenging experience for even hardworking adults. Gifting or making a low interest rate loan for a down payment on a home for which the child can independently afford the mortgage payments, property tax, and insurance payments or helping a loved one purchase a car after college for transportation to work can help the recipient become self-reliant and get a foothold on their financial future.

Supplementing living expenses (needs, not wants) for a period of time for a child who is working hard in a low paying job can offer the opportunity for the individual to pursue a type of work that may not otherwise have been possible.

On the other hand, I have seen parents make other types of gifts that unintentionally led to the giver feeling resentment or prompted the recipient to feel a sense of privilege or dependency. These feelings quickly led to conflict for all involved.

For example, gifts of large amounts of money to a 30-year old who lost his job and moved back into his parents’ home but who did not make much of an effort to find a new job fostered a longer period of unemployment and the child’s loss of self-esteem.

Paying for house repairs for a couple who took expensive vacations and drove fancy cars but never saved for life’s emergencies jeopardized their financial literacy and views about saving and left the parents wondering how their children would ever make it on their own.

Paying off the bills for a 40-year old who routinely ran up her credit cards and turned to her parents over and over for rescue kept that person in a constant position of need and generated conflict among her siblings.

According to the great medieval philosopher Maimonides, the highest level of gifting “is where one takes the other’s hand and gives him a gift or loan, or makes a partnership with him, or finds him employment, in order to strengthen him until he needs to ask help of no one”.

As we enter this holiday season, it is natural to want to give to our loved ones. Being mindful of how and what we give may help promote this spirit of a helping hand.

Please read important estate planning disclosures here.

Filed under: Estate Planning

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