Like many parents with adolescent or grown children, you may want to give them a financial jumpstart on their lives. You might help them to get their first car. Pay for their college or grad school tuition. Get them a foot in the door of their first home by contributing toward the down payment. Give them seed money to start a business.
If you can easily afford to help your child without affecting your own future wellbeing, you may want to make a financial gift with no strings attached. Keep in mind however, there are limitations regarding how much can be gifted to someone without incurring a gift tax, which is the obligation of the giver.
According to the Internal Revenue Service, while any gift has the potential to be considered a taxable gift, there are many exceptions to this rule. For example, the following are not considered taxable gifts:
If giving a gift to your child could compromise your own financial wellbeing or future, then don’t do it. We often say at Modera: you won’t be able to take out a loan for retirement. In addition, gifting on a regular basis may prevent some adult children from learning to live within their means or to appreciate the value of the gift.
However, another option to consider is an intra-family loan. This formal agreement, when structured properly, can offer significant advantage to you and to your children.
Intra-family loans are one of many techniques that can help achieve your and your family’s financial goals. As with any strategy, you and your trusted financial advisors should evaluate it within the context of your overall financial plan. Your advisors can help you structure the loan and document it properly so that your children can enjoy the full benefits of your intra-family loan while you support your long-term estate planning goals.
At Modera, we focus on helping our clients manage their entire financial lives, taking into consideration their family situations. To learn more about intra-family loans and financial gifts, please contact us.
Modera Wealth Management., LLC is an SEC registered investment adviser with places of business in Massachusetts, New Jersey, Georgia, North Carolina and Florida. SEC registration does not imply any level of skill or training. Modera may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.
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