Lifetime Gifting Without Regret: How to Give Without Compromising Your Future
Many individuals aspire to share their wealth during their lifetimes with family and friends. Lifetime gifting can be a meaningful expression of love, support, and generosity—helping children buy their first homes, supporting a grandchild’s education, or simply offering help when needed. However, these well-intentioned gifts can sometimes compromise the giver’s own financial security if not approached with thoughtful planning.
The Impact of Gifting During Your Lifetime
Unlike bequests that aren’t received by the beneficiary until death, lifetime gifts allow you to witness and enjoy the benefits your loved one’s experience from your generosity. For example, a gift toward a home down payment allows you to see your children or grandchildren springboard into the rewards of home ownership. Gifting funds for education eases financial stress by lowering or eliminating debt early in life which can yield massive results long-term.
More importantly, well-timed lifetime gifts can help a loved one when they need it most such as in a medical emergency, vehicle emergency, or job loss.
But What If...?
Lifetime gifting can be incredibly rewarding but the question I often get is “what if something happens to me and I need the money?”
That is a legitimate concern. The greatest risk is depleting your assets to the point that your own retirement or healthcare needs are compromised. This not only increases the risk of needing financial support from others later in life but may also lead to unintended emotional or relational consequences with those you previously gifted.
How to Gift
When people think of gifting, they often imagine direct transfers of cash or checks to children, grandchildren, or close friends. While this is certainly one approach, gifting can take many other forms—some of which are less obvious but equally impactful.
- Facilitate More Savings: Gifting money to help children save more to retirement plans, Health Savings Accounts, or 529’s.
- Paying for Shared Experiences: Funding memorable family vacations, celebrations, or other experiences that you can participate in.
- Covering Life Expenses: Helping with childcare, medical expenses, or basic utilities.
- Acting as the “Bank of Mom and Dad”: Offering low-interest or interest free loans to adult children to facilitate home purchases or business starts.
- Gifting Business Ownership: If you have a closely held business, gifting ownership over time can effectively pass wealth to next generations.
Lifetime Gifting, Done Responsibly
To give generously and wisely, consider the following best practices:
1. Start With a Comprehensive Financial Plan
Before gifting, ensure you have a clear understanding of your lifetime financial needs. This includes:
- Projected retirement spending
- Emergency reserves
- Long-term care scenarios
- Inflation and market risk adjustments
- Taxes on retirement distributions and required minimum distributions (RMDs)
Work with a financial advisor to run projections using conservative assumptions. If your plan remains successful even with gifting factored in, you can proceed with greater confidence.
2. Create a Gifting Budget
Just as you budget for travel or home improvements, establish a defined annual or lifetime gifting budget. This not only sets clear boundaries but also makes gifting feel more intentional and sustainable.
Include:
- Regular support to children or grandchildren
- One-time gifts (e.g., weddings, home purchases)
- Charitable gifts
- Emergency Gifts
3. Use the Annual Exclusion Strategically
As of 2024, you may gift up to $18,000 per donor, per recipient per year ($36,000 if married and splitting gifts) without using any of your lifetime gift and estate tax exemption. This method is ideal for spreading gifts over time in a tax-efficient manner.
See the Latest Tax Resources for updated numbers.
4. Use Non-Cash Gifting Wisely
Gifting appreciated assets (e.g., stocks or real estate) instead of cash can be tax-efficient, particularly if the recipient is in a lower tax bracket. However, be aware that the recipient assumes your cost basis, which could lead to capital gains taxes upon sale.
5. Consider Gifting in the Context of Medicaid Planning
Large gifts made within five years of applying for Medicaid may trigger a penalty period. If you anticipate needing long-term care and might qualify for Medicaid, consult an elder law attorney before making significant gifts.
6. Communicate Clearly with Family
Transparency can help prevent future misunderstandings. If you plan to give more to some individuals than others (e.g., a child with special needs or lower income), explain your reasoning in a calm and loving manner. Also, consider documenting your intentions in an estate letter or family meeting.
When to Pause Gifting
Even with a thoughtful plan, there may be moments where it is prudent to pause or adjust gifting:
- A significant decline in investment portfolio value
- A personal health event or unexpected expense
- Changes in tax law that affect your estate or income
- Concerns about a recipient’s ability to manage money responsibly
Flexibility is key. Revisit your gifting strategy annually as part of your overall financial checkup.