Gifting Money to Children – Don’t Do It Wrong

Gifing money to children can be a fantastic way to help them realize their dreams; but if done incorrectly it could backfire on you.

Gifing money to children automatically becomes their property; therefore, you should consider opening a custodial account so the funds won’t become accessible until they reach an age appropriate for access.

The Intent

As a parent, grandparent, family friend or other adult giving money to children can be an incredibly wise investment in their futures. From helping them buy the home of their dreams or funding startup costs for a promising business to opening savings accounts that enable financial independence – there are various ways you can help young people. But before giving money to children it’s essential that the recipient understand the purpose behind your gift and plan ahead accordingly.

Money gifts may bring many positive aspects, but they may also come with certain potential drawbacks that need to be carefully considered before giving. Such drawbacks could include expectations that more will follow or tax implications as well as hard feelings from recipients who receive less or none at all. To protect against these consequences it is best to consult a tax professional or financial advisor prior to giving large sums of cash gifts.

Gifting children can have serious ramifications on any financial aid you might provide them in the future when attending college or vocational school, and large gifts made to adult children could even incur gift tax and GSTT (Global Transfer Tax).

People often give large gifts of money to their children or grandchildren in order to ensure they can enjoy all of life’s pleasures without incurring debt and having to worry about paying taxes. But perhaps the most essential benefit is teaching your kids and grandchildren the value of money through the example set by parents and other adults in their lives.

EarlyBird can help simplify and streamline how you educate children and grandchildren about money, providing grandparents, aunts and uncles, or family friends the ability to contribute towards building strong financial foundations for them while aiding them on their path towards adulthood. Each contribution will automatically be invested, while once your child turns 18 they’ll have complete control of these funds themselves.

The Purpose

Gifting money to children, whether from parents, grandparents, or close family friends, can make an immense impactful difference in their lives. From helping buy or build their first home or condo to paying for exotic vacations or gadgets to setting them up with a retirement account or college fund; your generosity could go a long way to making their lives brighter!

But it’s essential that your gifts serve a specific purpose; otherwise, you risk giving away an indeterminate sum and expecting the recipient to understand how to spend it responsibly on their own. Gifing money to children small amounts until they’ve mastered basic addition, multiplication and division. Likewise, make sure not to exceed annual and lifetime gift tax exclusion rates or the Good Samaritan Trust Tax (GSTT).

Gifing money to children

If you do decide to give to minors, the easiest and safest way is via a custodial account, commonly referred to as an UGMA or UTMA account. These legally hold assets in their own names while someone acts as custodian to decide how and when the asset should be distributed. You can open such accounts at many investment firms and banks. While they won’t generate much in terms of interest payments, they provide greater security than leaving money sitting idle in bank accounts.

Suze Orman, an expert on personal finances and parenting, advises allowing children three options when it comes to spending or saving the funds given them: save, spend or share. This way they can learn to prioritize their goals while understanding the significance of having choices when it comes to spending and saving.

Although leaving an inheritance to your loved ones through your will can be rewarding, helping them throughout your lifetime is just as fulfilling. From helping them afford a down payment on a new house to paying for lavish vacations or setting up retirement accounts – giving financial gifts that enable your loved ones to realize their dreams will remain beneficial throughout their lives.

The Format

There are various methods available to parents when it comes to giving money as gifts for their children’s benefit. One option may be setting up an Uniform Gifts to Minors Account (UGMA), so they have control of it until their child turns 18.

Sometimes you may want to give adult offspring an added financial boost by helping cover cell phone bills, student loan payments, first home down payments and family vacation costs. While helping your adult offspring can feel rewarding, this should never compromise your own retirement planning or reduce income in retirement savings accounts.

No matter your relationship to your recipient, giving money should always be done in an approachable and memorable way. A roll of quarters is an inexpensive yet effective way to help teach kids about money’s value and how it should be spent wisely. While a check may be appropriate in most circumstances, for younger children it may become lost or misplaced too quickly; an envelope with a note describing your gift could be the better solution in these instances.

EarlyBird can make gifting money to minors much simpler for all involved and helps kids learn about saving. Plus, kids can see their gifts grow as they appreciate long-term compound interest savings! Speak with your Farm Bureau financial advisor about finding options best suited to you and your family.

Financial Security for Children: Beyond Cash Gifts

Parents often give gifts that last beyond just breaking or getting lost; giving your kids cash gifts doesn’t always cut it! For grandparents, aunts and uncles and other family members looking to give lasting financial benefits beyond annual cash gifts alone there are various tax-beneficial investment options available that could offer your gift more permanence and longevity.

One solution is an UGMA custodial account, which allows a named beneficiary (usually their child) to save assets until they reach the age of majority in their state. Once this age has been reached, however, they will have complete control of managing and investing the assets themselves.

Gifing money to children

Other investment vehicles for young heirs to consider include trusts, annuities and real estate investments. Each has their own set of benefits and drawbacks, yet all can help contribute to building wealth for them over time. Some vehicles may even help teach young heirs the power of compound interest – how investing early can yield exponential returns in time.

Another way to grow children’s money is with home down payment gifts, whether directly to them or to a bank in their name. It’s best to give these funds at least two months in advance so they are “seasoned,” in lender parlance, so they count toward your assets when applying for mortgages.

Prior to making any significant gifts of money to children, it is wise to consult a financial institution or advisor. There may be important ethical and tax considerations at play which could change how a gift is given; thus it’s prudent to fully understand them before proceeding further with any decisions. Donating money to children can be an incredible way to ensure their futures and the next generation’s are secure and prosperous. Holidays provide parents, relatives, and friends an ideal time for investing in these young minds; doing so ensures children have all of the tools needed for a prosperous and secure future.

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