What To Do When Your Parents Gift Money To You Or Your Children

By
Mike Loo, MBA
January 9, 2019
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A recent survey found that among Millennial parents, nearly half have received financial support from their Baby Boomer parents in the past year, and 69% received financial support specifically for their own young children.(1) Another poll found that 3 in 4 parents with adult children have helped them pay both debts and living expenses.(2)

Clearly, it is common practice nowadays for parents to provide financially for both their adult children and their grandchildren. Many Baby Boomers are at a place where they are financially secure and have the desire to give their kids a leg up from where they were at the same age. For 2019, up to $15,000 can be gifted from one individual to another without having any tax effects. Many parents are reaching that limit with their gifts to their adult children for their own expenses and gifts to their grandchildren to fund their education and contribute towards their future well-being.

When Your Parents Give You Money

One-Time Gifts

The first thing you have to do is decide what to do with the money. Whether or not it is a one-time gift or will be ongoing will greatly influence your decision. If it is a one-time gift, it likely cannot be used to enhance your current lifestyle. Rather, you could use it to strengthen your current position by paying down debt. You could also use it for a one-time luxury, such as a vacation. Another good use would be to invest it to prepare for the future.

Of course, what you choose to do with the money will depend greatly upon your current financial situation and goals. If you decide to save it for the future, that brings up another set of questions. Where should you put the money? What kind of investment opportunities are available? How soon do you plan on needing it? The answer to each of those questions will determine what you do with the money, whether you put it in a money market account, invest in a brokerage account, or use it to fund your retirement accounts.

Ongoing Gifts

Though they are usually more beneficial, ongoing gifts are actually harder to plan for. You have to ask the same questions as above, but you also have many more options. If it will be a regular gift, you could use it to enhance your lifestyle instead of merely paying down debt or taking a vacation. Or you could use it to take advantage of a business opportunity that wouldn’t be feasible otherwise.

The hard part about ongoing gifts is knowing how safe it is to depend on them. If you make decisions based on the gift, what happens if it doesn’t come or is given sporadically? Many people fear sounding greedy or ungrateful if they ask their parents about money that they expected to receive but didn’t. The dependability of the gift money and the kind of relationship you have with your parents should be taken into account when planning for ongoing gifts.

One thing to be careful of, especially with ongoing gifts, is to not let it affect the stewardship of your own money. It is easy to change good habits and loosen the reins on your spending when you have extra money coming in. But is that wise?

Your parents are giving you money because they want to help you. Are they really helping you if you are simply becoming more careless? You should apply the same careful money habits as you would without the gift, even if it creates enough margin where you wouldn’t have to. Remember, what your parents give you is a gift. It is not required nor guaranteed, and you should manage it with that in mind.

When Your Parents Give Your Children Money

A lot of the same issues apply when your parents gift your children money or give it directly to you but for their benefit, especially when you aren’t sure if the gift will be regular and are not comfortable asking.

First, you need to decide if you should use it to meet current needs or future ones. If you save the money for your children’s college education, it could help them pay for a better school, get a better job, and avoid student debt. But if the money is spent today, it could pay for their childcare and thereby enable you to save more for retirement or get a house in a better school district, which could lead to a better education, admission to better colleges, and scholarships to avoid debt. There is no one right answer and it requires careful consideration of your family’s own unique circumstances and priorities.

College Funding

If you do decide to save the money for your children’s future, that brings up another host of questions. Where is the best place to put the money until you need it? A savings account? A 529 Plan? An UTMA? The answer will depend on a number of factors, including how liquid you want the money to be without penalties and how much control you want to maintain over the money. There are a number of options available to you, each with its advantages and disadvantages.

When saving for college, you need to have a target goal in mind. It is important to estimate the cost of college for your child in order to measure how much you need to be investing, the types of investments you should use, and to monitor your progress. Another reason to have a set goal is to avoid overfunding a college account. There should be a stopping point where you no longer invest in a 529 but rather divert the funds elsewhere. While leftover 529 accounts can be transferred to family members or have the funds removed with penalties, it may be better to simply avoid overfunding them in the first place.

Multiple Children

Having multiple children makes things even more complex because it can be hard to keep things fair and equitable. What happens when your parents, who gave a lot towards your firstborn, begin to taper off the gifts with subsequent children? Or perhaps the same amount was given, but it was divided by more and more children? What can you do so that the later children are not at a disadvantage?

Also, what happens when the gifts begin after you already have more than one child? If your parents start funding a college account when your first child is 5 and your second is 1, then the second may end up with a much higher balance upon entrance to college. What can you do and what should you do to help balance things out?

How I Can Help

These are some of the questions that arise when parents gift money to their adult children and grandchildren. Depending on the scenario, things can quickly become complex. Not only do you have to decide what to do with the money, weighing the benefits and opportunity costs, but you have to decide the best way to accomplish your goals with that money.

This is a common situation that my clients find themselves in when they turn to me for help. Together, we first determine the circumstances in which the money was given and the intent behind it. If your parents had a specific purpose in giving you the money, it is often best to honor that purpose.

Next, we discuss how you can use the money in a way that doesn’t distract you from your goals or cause you to become financially irresponsible. We talk through different scenarios in advance and address the “what-ifs” that could occur in each in order to develop a solid plan. My clients really enjoy having me there as a sounding board to bounce ideas off of, as well as to hear my insights based on the experience that I have had myself and with other clients.

If you’ve found yourself the recipient of financial gifts from your parents, or just need someone to help you sort through your own finances, call me at (949) 221-8105 x 2128 or email me at michael.loo@lpl.com. I would love to partner with you so that you can make wise financial decisions to build a secure future for you and your family.

(1) https://s1.q4cdn.com/959385532/files/doc_downloads/research/2017/Millennial-Parents-Survey-Key-Findings.pdf

(2) https://www.creditcards.com/credit-card-news/pay-adult-childrens-debt-poll.php

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November 11, 2023

Many Americans spend more hours than they’d like managing necessary financial components of life while balancing caring for a family, performing at work and enjoying time with loved ones. Despite working hard to try to strike a perfect balance, financial planning, saving and investing can be tedious and time consuming, and maybe even daunting.

This is where a fiduciary comes in.

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What Is a Fiduciary?

The term fiduciary is thrown around in the financial services world, but few people truly understand it.

A fiduciary is a person or organization that acts on behalf of another person or persons, and puts their clients' interests ahead of their own. A fiduciary has a duty to act in good faith and serve clients by earning trust and confidence. Being a fiduciary thus requires being bound both legally and ethically to act in the client’s best interests.

To the Financial Advisors at Trilogy Financial, it’s more than that. Yes, we believe “fiduciary” means putting clients best interest before our own. However, we take it steps further to demonstrate with evidence that our proposals are in the client’s best interest. The evidence, be it in a financial planning concept or investment strategy, is the key to being a fiduciary.

Why Is It Essential To Work With a Fiduciary?

When a fiduciary presents evidence that their proposals are in the clients best interest, it leads to confidence. That confidence leads to good financial decisions over time. As Life Planners, that is what Trilogy’s Financial Advisors are working towards.

A fiduciary's main goal is to help set clients on an upright financial track through financial behavioral coaching, accountability and to help clients develop a Life Plan. A financial advisor and fiduciary will also help you prepare for retirement by maximizing the profitability of resources directed towards saving plans, develop estate plan strategies and more.

As Advisors, we anticipate individual’s or family’s needs over time, which allows us to be a better fiduciary. We believe a true fiduciary guides clients through life’s roughest patches and toughest situations.

Let a Fiduciary Be By Your Side When Life Planning

Let’s face it…a fiduciary can help ensure your financial goals are aligned in the same direction as your ambitions. Right? Proper financial planning requires objectification of your goals through the hands of an excellent financial partner who can help you with the following.

Help you save for retirement

For many, having $1 million worth of liquid cash and a list of profitable assets by the time they retire is a dream come true. However it’s a difficult dream to work towards for many Americans. That’s where a fiduciary comes in.

The secret to getting the retirement and lifestyle you dream is preparedness and time. The earlier you begin to save, the better. Beginning early allows you to make small contributions that will accumulate to a lump sum amount over a long period. For instance, if you start saving $5,000 every year from your mid-20s, by the time you are 40 years old, you will mostly likely have crossed a quarter a million mark. Remember, you will still be young, energetic, and even determined to save more. Because compounding is so powerful, if you continue saving the same amount by the time you are 65, you could be almost at $1.5 million, more than what you had intended to save.

In contrast, if you start saving at 35, even if you double that amount to $10,000, you may stagnate at $840,000 by the time you hit retirement age. So, the earlier you begin to save, the more you will receive at retirement. But do not be deterred if you are starting later in life. With the right planning, it’s never too late to achieve your goals. A Trilogy Financial Advisor can develop strategies to compound savings through investments and other growth opportunities.

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According to Market Watch, an average American will spend over $58,464 on their child's education from primary school to the undergraduate level, doubling the UK's average spend and tripling France's. Now imagine you are the head of a typical American family with more than 3 dependents; you will need almost $200,000 for education alone.  This is a huge dent in a family's finances. Fortunately, a fiduciary can help you save for education and college. Saving about a third of your earnings for a decade with the purpose of spending it on education will take the pressure of school fees off your shoulders.

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The potential of growing your total net worth is an exciting process. Our Financial Advisors help you to navigate investment opportunities and mitigate risk, serving as guides as you work to grow your investments. At Trilogy Financial, we believe investing is about more than positive returns. Growing your wealth is a tool that can help you achieve financial freedom and live the life you’ve dreamed of. A fiduciary can coach you through building out the investment portfolio that aligns with your unique goals, and empower you to make the meaningful decisions to pursue your life dreams.

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Due to the complex nature of estate planning, estate strategies should be tailored to your unique needs. And each strategy should aim to protect and preserve your assets for future generations.

Regardless of the value of the estate, a fiduciary will help you plan for the estate by:

  • Ensuring your beneficiaries receive what you’ve planned for them after you pass
  • Planning for lifetime gifts through trust and minimization of diminishing estate taxes
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  • Identifying powers of attorney to ensure your wishes come true

 

Trilogy Takes a Bold Financial Approach

For us, care is at the center of everything we do as fiduciaries.. We care about each client like they’re an extension of the family. Every day, with every piece of advice, we empower our clients to live wealthy. Ready to explore the benefits of working with a fiduciary? Review Trilogy's Financial Life Planning Tool to see some of the areas of focus we’d suggest on the path to financial freedom.

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Start Life Planning today.

Fiduciary investment advisory services are only offered through Trilogy Capital (TC), a Registered Investment Advisor. TC markets advisory services under the name of Trilogy Financial (TF), an affiliated but separate legal entity. TC and TF are separate entities from LPL.

By Trilogy Financial
February 26, 2024

In the era of self-directed retirement planning, the need for individualized strategies and informed decisions has never been more pronounced. As you tread into the realm of retirement, engaging with experienced retirement planners becomes crucial to ensure a secure and joyful post-career life. However, the realm of investing can be complex, and making informed decisions is vital for financial success.

If you are looking to make well-informed investment decisions, consider speaking with a financial advisor at Trilogy Financial Services. With the help of qualified professionals, you can navigate the financial complexities that may be hindering your wealth amplifying journey.

Through this expedition, we recommend reaching out to the Financial Planners at Trilogy Financial Services to help guide you through the fog of financial decision. They can help you navigate resources such as the “dont worry retire happy pdf” documents or the more simplified “Retirement for Dummies” documents you might find on the internet when looking for solutions.

 

Understanding Taxes and Retirement

Let's take a moment to talk about retirement.. It's not merely a phase of life; it's a significant transition that requires meticulous planning and foresight. One of the critical aspects to consider is how might taxes have an impact on your financial plan. A comprehensive understanding of tax implications is essential for effective wealth management, especially when it comes to safeguarding your nest egg from potential tax liabilities.

 

 

Wealth Management Strategies

Engaging in astute tax and wealth management strategies is paramount in preserving and growing your retirement corpus. By exploring various tax-advantaged retirement accounts and consulting with professional tax advisors, you can better prepare for the tax implications that come with retirement. This proactive approach not only keeps your financial plan on track but also paves the way for a more secure retirement.

 

 

Smart Retirement Options

As you delve deeper into the retirement planning process, exploring smart retirement options becomes a priority. These options could range from choosing the right retirement accounts, investing in tax-efficient funds, to exploring annuity products that provide a steady income stream. The aim is to build a robust financial portfolio that aligns with your retirement goals while minimizing tax liabilities, thereby ensuring your savings not only last but grow throughout your retirement.

 

 

Real-world Case Studies

  • Transitioning into Retirement: Curt from De Pere, WI, started strategizing for his retirement alongside his wife after lengthy careers in public service, with the assistance of a Financial Planner.
  • Early Retirement Evaluation: Stephen and Nicole evaluated an early retirement package to manage taxes efficiently during their transition into retirement.
  • Career Change and Retirement Planning: Susan and Chris transitioned from high-profile music industry jobs to retirement, achieving their goals with the aid of First Wealth.
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The Bright Side of Retirement

Planning for retirement isn't solely about numbers and finances; it's also about envisioning a happy, fulfilling life post-retirement. Infusing humor and a positive outlook towards this life-altering phase can make the journey enjoyable. A funny, happy retirement is indeed a product of sound financial planning paired with an optimistic outlook.

 

 

Key Retirement Statistics

  • Gender Disparity: Only 17% of women feel on track to meet their financial goals compared to 26% of men.
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Professional Insights

Professional insights add another layer of credibility to the smart retirement planning narrative. Jim Barnash, a Certified Financial Planner with over four decades of experience, emphasizes the importance of meticulous retirement planning. Understanding complex financial concepts such as the ‘Sequence of Returns Risk' is also crucial as per experts' advice. Moreover, strategic moves endorsed by financial experts can significantly enhance the possibility of retiring as a millionaire, as discussed in a recent piece on Nasdaq.

 

 

Planning for the Unexpected

To further aid in your retirement planning, establishing an emergency fund is advisable. An emergency fund serves as a financial buffer, ensuring you have the resources to cover unexpected costs. Having three to six months' worth of living expenses in your emergency fund, which can be adjusted based on your unique financial situation and risk tolerance, is a common goal provided by financial planners.

 

Leveraging Modern Technology

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Conclusion

Smart retirement planning is a multi-faceted endeavor that demands a blend of financial acumen, forward-thinking, and a zest for life. By embracing a holistic approach towards retirement planning, you not only pursue your financial future but also set the stage for a joyful and fulfilling retirement. The journey towards a secure retirement begins with the right financial planning, educating oneself on the financial landscape, and making informed decisions that align with your values and retirement goals.

Instead of spending years mastering finances on your own, partnering with those who have already traversed the financial landscape can fast-track your financial success. A dedicated financial advisor from Trilogy Financial Services can work with you to make your money work smarter and harder, simplifying the financial intricacies that have been keeping you up at night.

You can schedule a no-strings-attached portfolio review today and embark on a path to financial success guided by professional advisors. For more information and to schedule your consultation, visit www.trilogyfs.com/yourmoneyamplified. With the right knowledge and professional guidance, the journey of investing becomes an exciting venture towards achieving financial security and growth. This way, you're not just dreaming of an ideal retirement but actively working towards making it a reality.

 

 

*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

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