Hard Question: Gift Money Now or Bequeath in Decades?

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It’s a hard question.

You have kids who are almost certainly facing far more difficult financial challenges than you.

You’re getting close to retirement age and have beaten the odds and managed to amass a decent-size nest egg.

So, do you give money to your kids now, when they can use it to make life less of a struggle and you get to see the impact?

Or, do you keep building your nest egg, knowing that one day (hopefully in decades rather than years or months) your kids will inherit a large amount but only when they’re in their 50s, 60s, or 70s?

What Factors Should You Consider?

Your answer will depend on many factors. Here are some of the important ones.

• How much are your kids making, and how does that compare to a reasonable cost of living where they call home?
• What large expenses are they facing that they can’t avoid but can’t afford, and how big are those expenses?
• Are there important milestones they can’t reach due to a lack of money (e.g., getting married, buying a first home, having their own children, etc.)?
• How far is your nest egg from being sufficient to retire with your desired retirement lifestyle?
• How quickly can you supplement your nest egg, and what does that imply for how many more years you need to work vs. how long you’re willing and able to keep working?
• If you give money to your kids, how will that affect them (e.g., will it make them dependent on you, will it rob them of the impetus to overcome their challenges unaided, etc.)?

The Case for Gifting (at Least Some Money) Now

First, as mentioned above, if you give your kids money now, you’ll experience their gratitude and see its positive impact.

Second, if your kids are in their 20s, 30s, or 40s, getting that money now can alter their life trajectory. Perhaps they’ll start a business, buy their first home, or replace an unreliable clunker with a car that reliably gets them to work.

Any of these can have a life-altering impact.

But if you hoard your money (as some describe it) until you die, your kids may not get anything until they’re in their 50s, 60s, or 70s, by which time it will be too late to have as significant an impact.

By that point, the most it could do may be to help them upgrade from their current home to a grander one (is that really something you want to hold out for?) or add to their own retirement fund, letting them gift more generously to their kids or use your example and hoard that money until they pass away.

Finally, our parents gave us generously when we most needed it. The most impactful (and most generous) was when my business income dropped by 80 percent for nearly a year exactly when we needed money to build out an office suite we had just purchased.

Our parents never wanted us to pay that back, but I’m morally certain they’d want us to pay it forward to our kids, their grandchildren.

The Case Against Gifting (Too Much) Now

On the flip side, if your kid struggles to make ends meet and you start giving him or her money each week or month, you’ll likely make him or her dependent on that support.

This can get in your kid’s way to self-sufficiency. It could undermine his or her desire and commitment to get a higher-paying job or start a side gig or business.

And will there ever be a point when you’ll stop that support? When your kid is 40, 50, 60, or even older? What if he or she is deep in credit card debt? Will you offer a bailout? And if so, won’t that enable the poor financial habits that led him or her into debt, repeating the cycle? If that’s what happens, at what point do you say “No more”?

And if you have more than one kid and only one of them struggles, supporting that kid regularly could generate sibling resentment.

Nine Possible Compromise Solutions

If you’re debating with yourself and/or your partner, here are some possibilities that won’t put you on the hook for repeated cash transfusions nor make your kids continuously dependent on you.

1. If your adult kids can’t meet their regular expenses despite working full time, rather than give them cash each month, offer to help them figure out ways to earn more or spend less (make sure you check with them first if they’re open to this or you’ll come across as patronizing, which no one appreciates).
2. In extreme cases, you can offer them to move back in with you to save them the cost of housing, utilities, and groceries. If you choose to do this, have a conversation and agree as to any monetary contribution you expect them to provide toward your increased expenses and, more importantly, when you expect them to move back out. That could be a date or an achievement (e.g., getting a 20 percent higher salary, etc.), or whichever happens earlier.
3. If you have the necessary experience and expertise, you could help them strategize starting a side gig or business. Then, if you believe they have a good chance of success, you could gift (or lend) them money toward startup costs (e.g., Jeff Bezos’ parents reportedly gave him hundreds of thousands of dollars to start up Amazon, despite his telling them that the business may very well fail – it looks like they made a pretty good bet with that…).
4. If your kid needs a car to get to work, you could help by paying enough of the cost that the monthly payments aren’t overwhelming. Alternatively, you could gift or permanently lend them your old car when you buy a new one. This is something I’ve seen many parents do.
5. You could help with a down payment on their first home but require that they be able to afford the mortgage payments and other homeowner expenses without help. Otherwise, you’d be setting yourself up for being on the hook for regular monthly cash transfers to them and/or setting them up for losing their new home.
6. You can help with large, unexpected expenses (e.g., if they have major health-related costs).
7. You can start a 529 plan to cover your grandkids’ college expenses, removing or at least reducing that burden for your kids. This is something we’ve started.
8. If your kid is still in college and is willing to work part-time to earn at least enough to max out an IRA, you could gift them $0.50 for each dollar they plunk into a Roth IRA. They would not have to pay any income taxes (unless they make an unlikely high income) on their wages or your gift, and the Roth IRA would compound for decades and create a huge part of the money they’d need to retire, tax-free! For every dollar they invest in that Roth IRA, 40 years later they could have $15 or more. Thus, if they invest the $7000 maximum contribution each year for four years with a 10 percent average annualized return, four years of such contributions will end up worth over $1.1 million by the time they retire! Even accounting for a 3 percent average inflation, that would still be a respectable $353k in today’s dollars. I wish I’d thought of this early enough to help my kids this way.
9. Especially if you can’t afford to do any of the above (and assuming your kids live nearby), you could at least invite them over for a weekly dinner, send them home with enough leftovers for a meal or two at home, and drop by periodically with a cooked meal and some groceries. This can help reduce their food budget, save them meal preparation time, and strengthen your family ties to boot. When I was in college and living with my then-girlfriend, both sets of parents helped us this way.

What Do the Pros Think?

Omar Morillo, Founder and Sr. Wealth Advisor at Imperio Wealth Advisors, shares, “Our clients often inquire whether to financially support their adult children or leave an inheritance for later. I recommend ensuring their financial stability first, defining clear boundaries for support, and considering the immediate benefits, such as educational and home purchase assistance. However, avoiding fostering dependency or compromising their financial security is crucial. Open communication, phased giving, and professional advice are essential. Supporting less well-off siblings can be a meaningful alternative for clients without children, provided it doesn’t impact their financial health and encourages the sibling’s independence.”

Mike Hunsberger, Owner, Next Mission Financial Planning agrees, “I encourage clients to help their children (or grandchildren) as long as their plan is on track to meet their needs. Giving to your kids when they need it is much more impactful than waiting until the kids are in their 60s when they probably have much less use for it.

“Walking the line between helping and dependency can be difficult, so I encourage them to consider whether the kids are generally responsible with finances. If they are and just need some help with a bigger purchase like a house down payment or the gifting or purchase of a vehicle, I think there is less likelihood for dependency.”

Daniel Masuda Lehrman, Lead Financial Planner at Masuda Lehrman Wealth adds another consideration, “From a tax standpoint, it’s far better for your heirs to allow them to inherit assets versus receiving assets while you’re alive. Beneficiaries [of taxable accounts and property] receive a step-up in cost basis that allows them to liquidate assets with minimal tax consequence, while gifting is limited to $18,000 annually without having to report the gift via IRS form 709.”

Kevin Estes, Founder & Financial Planner, Scaled Finance shares several thoughts, “Studies have shown that people derive more happiness from experiences than stuff. They get the anticipation, moment, and memory of an experience! That’s why experiences can be great gifts. For instance, my mother gives my wife and me tickets to a concert each year. We love both the gesture and the event!

“If giving money, a generous gift early in life can change someone’s financial trajectory. That’s part of why college is so expensive!

“An often-overlooked benefit of giving while alive is learning how recipients spend it. Do they have pressing needs like credit card debt, student loans, or other debt? Are they ready to receive a larger inheritance or would they likely blow it? Consider sharing how the money was made. Don’t just give them the proverbial fish – teach them how to fish.

“It’s important to consider estate taxes. The federal estate tax exclusion is high but projected to drop with the sunset of the Tax Cuts and Jobs Act. Some states have lower exclusions – as low as $1 million. The annual gift tax exclusion for 2024 is $18,000. You can give $18,000 per recipient each year and double that if you and your spouse gift. A lifetime giving strategy can be a great way to lower estate taxes.

“Whether you gift over time or through a bequest, consider this, one of my favorite Warren Buffett quotes, ‘Leave your children enough that they can do anything, but not enough that they can do nothing.’”

The Bottom Line

You don’t owe your adult kids financial support, especially not after they graduate from college and move out, and most especially not if you already went the extra mile and paid for their college attendance.

However, not owing isn’t the same as not wanting to keep helping them when they need it. And holding off on any financial gifts until you pass away may prevent your kids from living the life you’d like them to experience until it’s decades later and too late to make anywhere near as big an impact.

If, like us, you want to help your kids before you die, you need to figure out what you can afford to do without derailing your lifestyle in retirement and/or risking becoming a burden on your kids in your old age. You also need to figure out when and how you will help them, with what, how much money (or money-equivalent) support you’ll give, and for how long.

Whatever your answers to these questions, do your best to avoid making your adult kids dependent on your regular support. That rarely ends well for anyone.

Jorey Bernstein, CEO of Jorey Bernstein Private Wealth Management sums things up, “When considering whether to gift money to your adult children now or leave it as an inheritance, there are several factors to weigh. Gifting while you’re alive allows you to see the impact of your generosity and potentially reduce your taxable estate. However, it’s crucial to ensure your own financial security first. Leaving an inheritance gives you more control over your assets throughout your lifetime but may result in a larger tax burden for your estate. Ultimately, the right choice depends on your financial situation, family dynamics, and long-term goals.”

The above provides nine suggestions for your consideration that are likely to avoid that pitfall. Can you think of more good options (or better ones!)?

About the Author

Opher Ganel, Ph.D.

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

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