Inter-Generational Gifting: Strings or No Strings?

Inter-Generational Gifting: Strings or No Strings?


My brother and I are having a disagreement. We’re both grown adults with grown children, so our disagreements look like discussions with the occasional pointed jab that recalls old childhood tensions. This disagreement started when the three of us – me, my brother, and our mom – were sitting around after dinner a few weeks ago.

I’m the one who helps Mom with her finances. That means the online stuff, taxes, and coordinating with her investment company. A couple years ago, her investment advisors suggested she might want to take advantage of IRS rules that allow tax-free financial gifts to individuals. She liked the idea. It gives her a chance to help her kids and grandkids during her lifetime rather than waiting until she’s gone. It also helps her estate avoid taxes later. The IRS allows tax-free gifting up to an exempt amount each year. In 2024, the exemption is $18,000 per gift.

Gifting with emotion

Now that the explaining is out of the way, back to the disagreement. Mom has been depositing her three granddaughters’ gift money into UTMA accounts for the past three years. The rules for these custodial accounts say they must be turned over to the beneficiary when they turn 25. My brother’s older daughter will be 25 next January (the other is a sophomore in high school). My daughter will be 25 the following year.

So that night at dinner, I told my brother that Mom and I had been thinking about how to encourage wise use of the money once the girls reach 25. Perhaps if we required them to keep a certain amount of the funds in the account in order to receive more in subsequent years. I asked my brother if he had any thoughts.

Well, he had thoughts alright. He said there shouldn’t be any restrictions on how any of the girls use “their” money. Their grandma should just be sending them checks each year. I asked if he thought it was sensible to hand thousands of dollars to someone as young as fifteen. He balked at having any rules. This didn’t surprise me that much. After all, he wasn’t much for rules while we were growing up. But he’s a father now. I also thought he’d be more sympathetic to Mom’s feelings.

Money and the prefrontal cortex

It’s a tricky discussion to have, because no one wants to imply that younger people are frivolous or untrustworthy. But there’s also plenty of science that says human brains are still going through major changes well into the late twenties. The prefrontal cortex is one of the last parts to mature, and that’s the area responsible for planning, prioritizing, and making good decisions.

I know Mom would be heartbroken if the money she and Dad worked hard to earn and save was squandered. My brother insisted that we should stop getting so hung up on rules. Just give money with no strings attached.

This all made me realize that passing money on to the next generation isn’t just a financial decision. There’s a lot of emotion that goes into it, on all sides. Mom wants to feel appreciated for her generous gift – she’s not just an ATM. She can’t force her granddaughters to express sincere gratitude, but she would like to be assured that the money is going to be used wisely. Money certainly has the power to make relationships awkward.

Here’s what we decided

Well, since my brother essentially opted out of the discussion, Mom and I continued it later without him. After bouncing around a few ideas, we came up with a plan. Mom sent her granddaughters an email outlining the rules. Yes, there are rules.

She told them she’s really happy to be able to give them money, and she’ll still contribute to their UTMA accounts each year. Once they turn 25, if they want to continue receiving financial gifts, they just need to write her a letter explaining how they’re using or investing their funds wisely. The letter will help her decide if it’s a good idea to keep giving.

That’s what we did. What would you do? Your Arrivity financial planner can help you talk through inter-generational giving strategies. Whatever you do, it’s okay to think about your feelings, too.

Things to think about when planning for kids and grandkids:

  • Before you plan any kind of inter-generational gifting, be sure you’ve got your own finances in order. The best gift you can give the next generation is your own self-sufficiency.

  • A UTMA (Universal Transfer to Minors Account) is a way to hold money for the benefit of a minor. Your bank, credit union, or investment firm can help you open an account and explain the age limits in your State.

  • The IRS gifting exemption allows you to give tax-free money to anyone – immediate family, a niece, a godson, and even a friend. Keep in mind that charitable giving, political contributions, and educational support have different rules.

  • Take your time to think about your inter-generational gifting. You’ll want to make sure family members see it as fair, and they understand your feelings, too. Your financial planner can help you structure a sustainable plan. 

    Please contact us at 206.217.2583 or if we can assist you or someone you know with financial planning.

    The foregoing content reflects the opinions of Liz Behlke and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.