Before gifting money to your adult children, consider how it might impact your own financial future. Make sure your plan balances generosity with retirement security.
Take advantage of tax benefits the annual and lifetime gift tax exemptions bring; you may be able to reduce your estate taxes through strategic gifting.
Consider whether setting up an irrevocable trust is the right approach for gifting money. A trust offers control and potential tax advantages, but also limitations such as reduced access to funds and mandatory reporting.
Perhaps your son asks for help with a down payment on a dream house for his growing family. Maybe your daughter is seeking startup funding for a promising new business. Or maybe you think it would be gratifying to pass some wealth to your family sooner rather than later, so you can see the funds in use.
When gifting money to adult children, it’s important to consider both the financial benefits, tax implications, and emotional implications of your gifting.
How gifting money to adult children impacts your future
The first and most important consideration is to examine any monetary gift in the context of your entire estate. It’s easy to get swept into an adult child’s pressing need or to be overcome with emotion when you’re thinking of passing on your legacy. However, you need to consider your own future first, and make sure you’re protecting your retirement years.
Whatever amount you’re considering giving or its intended use, develop a gifting plan before making any decisions: how much, when and why. Seeing the whole picture can help you understand how much you can gift to your adult children while keeping what you’ll need.
When gifting money to adult children, it’s important to consider both the financial benefits, tax implications, and emotional implications of your gifting.
Tax benefits and gift limits of gifting money to family members
When it comes to your family’s immediate needs, gifts of cash or assets (such as stocks, real estate, collectibles, etc.) can potentially reduce your gift and estate tax burden. This is a key reason why many parents (and grandparents) consider giving money or assets as an early inheritance.
Understanding the rules and limits around financial gifts can help you make informed decisions that meet your and your family’s needs.
Annual gift tax exclusion.
For smaller gifts, an individual taxpayer can benefit from the annual gift tax exclusion, which allows you to gift up to $19,000 per recipient in 2025 ($38,000 for married couples filing jointly) without having to pay taxes. There is no limit to the number of individuals you can gift this amount to in a year.
For example, if you have three children, you (and your spouse, if married) could gift a total of $114,000 in 2025 across all recipients tax-free under the annual exclusion.
If you exceed this amount for any recipient, you are required to report the gift by filing Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. While reporting is necessary, it’s unlikely you’ll owe gift taxes unless you’ve reached the lifetime gift and estate tax exemption amount.
Lifetime gift and estate tax exemption.
Larger gifts may also sidestep tax liabilities if you’re willing to have them count against the lifetime estate and gift tax exemption, which in 2025 is $13.99 million for individuals and $27.98 million for married couples.
If your lifetime gifts exceed these limits, any sum above the exemption is subject to federal estate tax.
Gifts of appreciated stock.
Another thoughtful and tax-savvy option is to gift appreciated stocks. Transferring shares to a family member allows you to avoid capital gains taxes you would have incurred if you sold the stock yourself.
Instead, the recipient takes on your original cost basis and pays capital gains tax only if and when they decide to sell the shares.
Contribute to a 529 plan.
While perhaps not applicable for your adult children, this would be a great gifting option for any grandchildren. Contributions to 529 plans are treated as gifts for tax purposes, allowing you to contribute up to the annual gift tax exclusion amount each year.
Additionally, you can make a lump sum contribution and spread it over five years for gift tax purposes. For example, in 2025, an individual could make a one-time $95,000 contribution ($190,000 for married couples) to a 529 plan, which wouldn’t be subject to the gift tax if you live for the full five years.
Since these contributions are made using after-tax dollars, they grow tax-free and distributions for qualified educational expenses are also tax-free.
Pay for education and medical expenses directly.
If your child has significant educational or healthcare expenses, paying these bills directly to the institution or provider is a highly effective way to support them without it being considered a taxable gift.
Payments made directly to qualifying educational institutions for tuition or directly to medical providers for healthcare expenses do not count against your annual gift exclusion or lifetime exemption limits. This approach can help you meet their important financial needs while allowing you to make additional tax-free gifts.
Is a trust the right option for gifting money?
The ease of gifting money outright may be beneficial for the recipient, but on the flip side, you’ve given up control of it. Watching your adult children spend money in ways you wouldn’t can quickly sour the joy and satisfaction of giving.
For a little more control over the distribution, you may want to consider a trust. In its simplest form, a trust is an entity, created and funded with cash, assets and investments, which allows you to dictate how your estate is distributed to beneficiaries.
An irrevocable trust, in particular, may be useful if the value of your estate exceeds the lifetime exemption. Although they typically can’t be changed or amended after they’re created, the assets move out of your estate and taxes are paid out of the trust, which can give you greater protection from estate taxes if created properly.
Irrevocable trusts come in various forms, depending on the gifting goals. And although trusts may be adapted to handle many situations, they have limitations. As complex, legally binding arrangements, it makes sense to be aware of their benefits and drawbacks.
Benefits of gifting through a trust may include:
- The joy of helping your children and seeing their appreciation while you’re still alive.
- An unmatched level of control over gifts to children of any age.
- The flexibility to drive decisions on gifts and philanthropy.
- The option to arrange and structure funding for specific goals, such as lifelong care for children with disabilities.
- Potential tax advantages for beneficiaries.
On the other hand, drawbacks of gifting through a trust may include:
- Irrevocable means irrevocable, so whatever restrictions you create will carry on into the future. If you place too much in the trust too early, you may face limited access to cash down the road.
- Mandatory reporting rules in some states require that beneficiaries be informed about trusts and what’s in them.
- Incurring fees for trust administration.
When it comes to helping your adult children financially now while still preserving your legacy, a little planning can ease the way and ensure you’re giving the way you intended.
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