How To Empower Your Children | Stewardship Concepts Financial Advisors

One of the common goals we see as financial advisors with our clients is the desire to leave a legacy. This goal looks different from person to person. This may mean someone donates a large portion of their estate to a charity. While another couple wants to build generational wealth and pass it on to the next generation. Navigating the delicate balance of supporting your children financially without spoiling them can be challenging. Ensuring they remain responsible and financially savvy while providing them with some level of security requires planning and strategic strategy. It may look different for some. There are many factors; for example, gifting during your lifetime may provide estate tax benefits. Here are several ideas for giving money to your adult children without negatively impacting their lifestyles or work ethic.

Gradual Wealth Transfer

One effective method is to transfer wealth gradually without significantly altering their lifestyle. For example, instead of giving your child a lump sum for their home purchase, let them go through the process of applying for a mortgage and purchasing a home within their means. Once they secure the mortgage, you can surprise them by offering monthly principal payments. This approach helps them maintain a sense of responsibility and accomplishment while still providing significant help (could cut down the mortgage by 10-15 years, depending on the payment). It also prevents the temptation of buying a house beyond their budget.

Another meaningful example of providing support without overindulging is to help with your grandchildren's education expenses. Contributing to private school or college tuition can significantly ease the financial burden on your adult children, allowing them to allocate their resources more effectively without feeling overly dependent. This type of assistance is a constructive way to invest in your family's future, promoting the value of education and relieving financial stress.

No Strings Attached

When giving gifts to adult children, it's crucial to ensure they don't come with manipulative strings attached. Gifts should be genuine and not tools for behavior modification. Conditional gifts can undermine the relationship, fostering resentment rather than gratitude. By giving freely, you respect their autonomy and allow them to make independent financial decisions.

Needs-Based Gifting

Giving based on needs rather than equally distributing money among adult children can be more beneficial. Tailoring your support to each child's specific circumstances can enrich their lives in ways that make the most sense for them.

For example, imagine you have two adult children, Alex and Emma. Emma is a single mother working as a nurse. She struggles to balance her career while raising two young children and faces financial stress due to childcare expenses. On the other hand, Alex is a successful software engineer who is doing quite well financially. In this scenario, you might provide financial support to Emma by assisting with daycare costs, alleviating her financial burden, and helping her manage her responsibilities more effectively. You could offer relationship support since Alex doesn't need monetary support. You could offer to watch Alex's kids once a week for a few hours, allowing Alex and his wife to enjoy a date night.

This is an example of helping your children meaningfully without treating them identically and acknowledging their unique situations and needs. If this sounds like a method you'd like to utilize, it's essential to communicate with all your children about why you're not giving equally and help them understand. As financial advisors, when we see estates without communication, it leaves the children more susceptible to anger and hurt feelings between each other. Help foster healthy relationships for your children by communicating your desires and actions now.

Lifetime Gifting to Reduce Taxable Estate

In Washington state, estates valued over $2,193,000 are subject to estate tax. By giving during your lifetime, you can help lower your taxable estate while also witnessing the positive impact of your generosity. In 2024, you can give up to $18,000 per year to as many individuals as you would like without filing a gift tax return. For married couples, this means up to $36,000 per year per child. Every gift you make reduces your potential estate taxes in the future. However, discussing gifting strategies with your financial advisor is crucial, as gifting highly appreciated assets may not be advisable due to current cost-basis step-up rules.

Conclusion

Providing financial support to your adult children requires balancing offering assistance and promoting independence. By gradually transferring wealth, giving without strings attached, and focusing on needs-based gifting, you can meaningfully support your children while encouraging financial responsibility. Additionally, this approach can reduce your potential Washington state estate tax liability and allow you to witness your financial blessings' positive impact on your children's lives. Reach out to a Spokane Financial Advisor if you have any questions about avoiding Washington state estate tax or want to devise a plan to pass on a legacy in an impactful way.