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Learn The Ins And Outs Of Next Generation Gifting Considerations

Julia Peloso-Barnes
Julia Peloso-Barnes Photo Credit: Contributed

PURCHASE, N.Y. -- Giving financial gifts to children or grandchildren can help reduce your estate taxes. However, if you are concerned about wasteful spending by the recipients, there are several options that allow you to exercise some control over how the is money used.

How Much Can You Give?

Federal law permits unlimited tax-free annual exclusion gifts of up to $14,000 per recipient ($28,000 if married), without the donor having to file a federal gift tax return. If you make a gift to any person in excess of the annual exclusion amount, you will be required to file a federal gift tax return. However, if your gift exceeds the $14,000 annual gifting amount or $28,000 jointly (husband and wife), the excess amount will reduce your lifetime gift and estate tax exemption currently $5.45 million per individual ($10.9 million per married couple)-and you will need to file a gift tax return (Form 709), but will not have to pay any gift tax. The gift will simply reduce the amount of your lifetime exemption amount. Taxes may not be owed in this instance, but you will be required to file a gift tax return.

Your generosity and good fortune potentially places a significant amount of money into the hands of children and grandchildren – adult as well as minors – who may be unprepared to manage a windfall. Here are some suggestions that may allay your concerns.

Lead by Example

When making gifts to adult children, discuss your feelings with them in advance. Suggest that they put the money to good use, such as paying down debt, starting a college fund for their own children, investing a portion or donating some or all to a charity of their choice.

Avoid handing a check to an adult child who you believe may squander the money. Instead, offer to contribute to big- ticket items, such as a new car or a mortgage down payment, or require them to attend a financial education course to learn about budgeting, savings, credit scores and other topics which could help them become fiscally responsible adults.

If you’d like to learn more, Please contact Julia A. Peloso-Barnes, CFP ® , CPM ® , ADPA ® , CPRC ®

The author(s) and/or publication are neither employees of nor affiliated with Morgan Stanley Smith Barney LLC . By providing this third party publication, we are not implying an affiliation, sponsorship, endorsement, approval, investigation, verification or monitoring by Morgan Stanley of any information contained in the publication.

The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Article by Wealth Management Systems Inc. and provided courtesy of Julia A. Peloso-Barnes, Morgan Stanley Financial Advisor.

Julia A. Peloso-Barnes may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where she is registered or excluded or exempted from registration.

© 2016 Morgan Stanley Smith Barney LLC. Member SIPC.

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