Investment math on when parent could consider giving money to adult kids.

[JakeyLee]

I would not give away $300k - $600k at age 80. My Mom went from living on SS and pension to paying $168,000 annually for care.

I came here to say this ^. Almost the exact thing happened to my family with my father. Darn near the same age, as well. He showed zero signs of dementia or mental deterioration. Then, over the course of 24 months, we could no longer care for him.

[corn18]

I would not give away $300k - $600k at age 80. My Mom went from living on SS and pension to paying $168,000 annually for care.

I came here to say this ^. Almost the exact thing happened to my family with my father. Darn near the same age, as well. He showed zero signs of dementia or mental deterioration. Then, over the course of 24 months, we could no longer care for him.

Yup. My MIL has $3M and is 82 in poor health. Currently in assisted living @ $120k / year. Full nursing care is $180k / year which she will likely need within a year. And she wants to hire a full time nurse @ an additional $360k / year. Oh my. Her money, but LTC can destroy a nest egg very quickly.

Retirement planning would be so much easier if we knew when we were going to die.

[WhatsUpB]

After confirming her expenses to be approx. ~80k a year all-in, investments of 2.07M, social security of $38k per year, and a paid off 1.5M LA house (LTC insurance only, not part of math below), we landed on the following.

I believe this is a measured approach balancing the short and long term, while fulfilling her desire to give while alive.

In 2024, gift $36k per child's family ($18k x2 kid+spouse). This amounts to a 108k gift and brings investments down to 1.97M.

Investments of 1.97M at a 4% safe withdrawal produces $78,800 - close enough to the $80k needed for 2025 life. Note this doesn't even account for the $38k of social security so she really only needs $42k per year.

2025: If investments are back above $2.1M, she will do the $36k x3 gifts again as long as she stays around 2M after gifting.
2026: Maybe an accelerated final gift in Jan 2026 if 2025 produces a portfolio above 2.2M, which would again would mean staying around 2M after gifts.

[Meg77]

She might incur significant medical costs later in life. Assisted living, board & care home, etc. are all still possibilities aren't they?

I'd actually not expect that to exceed the current spending of $125-140K.

So, are you saying that you expect all her current spending to stop once she winds up in an assisted living facility or a board & care home?

I'm curious as to what she's doing with the $10K to $11k each month if it's not on a house payment, or medical expenses?

At this point, we're just guessing since we're not getting input from the 70 year old herself.

Regards,

She is in good health on medicare, some is taxes+insurance, some is trips, some actually is small/medium cash gifts to the kids and grand kids (ironically she actually has been giving but i have been trying to simplify to not distract), and rest is just her life. She just wondered if she could do 3 large gifts (i.e. 100k each per kid) this year.

It seems at best she could do the exclusion this year to each kid $18k x3. Doing that this year keeps her above $2M. $2M+ in Taxable+IRA at minimum which provides $80k at 4% + $38K in social security. If at end of each year she is still over $2M do $18k x3 gifts. Maybe one day her investments get to 2.5M or 3M and could do three 100k gifts in a few years, but then the other classic problem remains all parents with wealth are presented...

The kids (in this case all 3) are in their 30s and starting families each with 1 or 2 kids and hoping to buy houses in nice school districts etc in the next 5 years. So there is this classic problem of wanting to help now with lager amounts (100k each would do it) so she can live to see this happen. But then of course those large gifts pull her below $2M and violate the 4% rule (ignoring the house).

I agree with your conclusion here. I would recommend that in good bull market years - like the one we've had - she consider giving up to the annual exclusion limit gifts to her 3 kids (maybe to grandkids too if she's feeling extra flush). She could do that in Dec and in Jan upcoming to give you each $36K and then take a pause and re-evaluate. This is likely fine, especially if most of her current budget is discretionary spending that she's willing to cut if things get tight (travel, etc.). This also keeps the paperwork very simply and doesn't require her to use any of her lifetime exclusion amount.

A 70 year old healthy single woman with a 5% SWR and a paid off house is in a great position. But she's not in a position to start giving away chunks of her estate - especially when it likely still needs to last her for decades. She will likely have to increase her annual spending to maintain her lifestyle, including things like in home care with could double her annual spend for years before death (my 92 year old grandparents have needed this for 5+ years already and are still going strong; they are nearly housebound but still manage to spend $200K a year in Alabama not including giving).

Besides, we haven't seen a major market correction in several years and there is a critical election looming and war spreading in Europe and the Middle East. Yes there are always things to worry about, but even in relatively stable times equities can drop 40% in a year. In which case her withdrawal rate to maintain spending will be a lot higher at least temporarily.

Even if she has to move into full time nursing or assisted living, financially it would make more sense for her to keep the house and leave it to you all in her will rather than selling and paying the huge capital gain. So if the goal is leaving you all as much as possible (now or upon death), avoiding the sale of the home before her death is ideal. And remortgaging it makes no sense (if she could even qualify for that, which I doubt).

[corn18]

Besides, we haven't seen a major market correction in several years <snip>

Yes we have.

[Meg77]

I don't think this chart disproves my comment. I consider 2022 to be roughly "several" years back and this point, and when I say "major" I was referring to 20%+ dips. My classification may be debatable, and to be sure there are small corrections almost every year.

But my main point is that we tend to see these kinds of questions after double digit stock market run ups when things are quite foamy. Which, of course, IS the time to take some off the top and give or spend big on a one-off basis if you want to. But I just always recommend asking yourself how you'd feel about the decision if the market drops 30% soon afterward.

[delamer]

After confirming her expenses to be approx. ~80k a year all-in, investments of 2.07M, social security of $38k per year, and a paid off 1.5M LA house (LTC insurance only, not part of math below), we landed on the following.

I believe this is a measured approach balancing the short and long term, while fulfilling her desire to give while alive.

In 2024, gift $36k per child's family ($18k x2 kid+spouse). This amounts to a 108k gift and brings investments down to 1.97M.

Investments of 1.97M at a 4% safe withdrawal produces $78,800 - close enough to the $80k needed for 2025 life. Note this doesn't even account for the $38k of social security so she really only needs $42k per year.

2025: If investments are back above $2.1M, she will do the $36k x3 gifts again as long as she stays around 2M after gifting.
2026: Maybe an accelerated final gift in Jan 2026 if 2025 produces a portfolio above 2.2M, which would again would mean staying around 2M after gifts.

It’s a reasonable plan, BUT she should be really careful of the tax implications if she plans to sell assets in her taxable account or withdraw from her IRA to make cash gifts.

She is flirting with paying additional IRMAA premiums (for Medicare) and the NIIT if she adds $100,000 to her usual income.

However, if she can transfer shares from a taxable brokerage account or has existing cash that she can gift, then additional taxes/costs aren’t an issue since her income won’t increase.

[dogagility]

After confirming her expenses to be approx. ~80k a year all-in, investments of 2.07M, social security of $38k per year, and a paid off 1.5M LA house (LTC insurance only, not part of math below), we landed on the following.

I believe this is a measured approach balancing the short and long term, while fulfilling her desire to give while alive.

In 2024, gift $36k per child's family ($18k x2 kid+spouse). This amounts to a 108k gift and brings investments down to 1.97M.

Investments of 1.97M at a 4% safe withdrawal produces $78,800 - close enough to the $80k needed for 2025 life. Note this doesn't even account for the $38k of social security so she really only needs $42k per year.

2025: If investments are back above $2.1M, she will do the $36k x3 gifts again as long as she stays around 2M after gifting.
2026: Maybe an accelerated final gift in Jan 2026 if 2025 produces a portfolio above 2.2M, which would again would mean staying around 2M after gifts.

I think it's a sound plan to gift an ever-changing amount each year based upon her portfolio performance (balance) and not a large lump sum at the moment.

[corn18]

I don't think this chart disproves my comment. I consider 2022 to be roughly "several" years back and this point, and when I say "major" I was referring to 20%+ dips. My classification may be debatable, and to be sure there are small corrections almost every year.

But my main point is that we tend to see these kinds of questions after double digit stock market run ups when things are quite foamy. Which, of course, IS the time to take some off the top and give or spend big on a one-off basis if you want to. But I just always recommend asking yourself how you'd feel about the decision if the market drops 30% soon afterward.

It was a 26% drop which is a bear market and it just recovered fully 9 months ago. How is that possibly not recent and major?

[trueblueky]

You can't spend 4% of a house each year (actually, you can with a reverse mortgage, but I don't advocate that), so I do not see the point in including it in net worth for this discussion.

I'd ask my mother to hold off.

[Meg77]

I don't think this chart disproves my comment. I consider 2022 to be roughly "several" years back and this point, and when I say "major" I was referring to 20%+ dips. My classification may be debatable, and to be sure there are small corrections almost every year.

But my main point is that we tend to see these kinds of questions after double digit stock market run ups when things are quite foamy. Which, of course, IS the time to take some off the top and give or spend big on a one-off basis if you want to. But I just always recommend asking yourself how you'd feel about the decision if the market drops 30% soon afterward.

It was a 26% drop which is a bear market and it just recovered fully 9 months ago. How is that possibly not recent and major?

I agree that it's major, I just don't think in today's news cycle that the market slide that began in early 2022 and bottomed out later that year is "recent" in many people's memories. Since then the market has been on a nearly steady march upward, and the result is someone with a low 7 figure liquid net worth feeling so flush she wants to give away multiple 6 figures of her portfolio. My point is actually similar to yours in that big market drops happen frequently and are to be expected, and if she thought about the fact that her portfolio can - and will at some point - easily drop by more than the amount she's planning to give away, she might think twice.

[ScubaHogg]

You can't spend 4% of a house each year (actually, you can with a reverse mortgage, but I don't advocate that),

of course you can

[hvaclorax]

As others said keep the annual budget SS plus tIRA stay as is. Allows her to gift to the children as she sees fit. If she feels safe to increase draw while leaving her a cushion for later, that would be okay. I know OP wants an unemotional response but I can’t help but think she needs to say. For sure not me.
House value is not a part of my spendable portfolio. Difficult to monetize and family needs to live somewhere. I will set that aside and not consider. I will assiduously avoid influencing as I don’t feel I am capable of deciding what is best for another. Many 70 year olds will have strong feelings about money. I’ve come to realize that money is a form of independence, solace? Have just gone through this with my mother. Don’t ask me ask her.

[DarthSage]

What have these 3 offspring been doing with the 40K/year combined she's been gifting them? Perhaps they should consider setting up a separate fund to save for a house on their own. Hopefully, they haven't been using it to supplement a larger lifestyle than they can actually afford. She can continue doing this, but no way can she just give 100K x 3 on that portfolio.

I would not count the house. One earthquake or one fire and the market value for that house isn't going to be the same. (Fellow Californian here) We don't count the house.

We also cash flow gifts to our kids and I'm sure they would love a lump sum, but they really like the idea that they don't have to worry about us.

Continue small gifts she's been doing and let the adult children step up their saving and in a few years, they will have enough to buy a house themselves.

This is my concern, as well. These adult children are in their 30's, have been getting (smaller) annual gifts, and still can't scrape up a down payment? They need to live within their means, save their annual gifts, and buy a house they can afford. While well-intentioned, the mother could be putting them on a track of overbuying a house, that they then struggle to afford, requiring more gifts from Mom, who then can't pay for her own end-of-life care.

I know the mom is loving and generous, but she needs to step back and (a) think of her own needs (put on your own oxygen mask first! This also helps the children by not being a burden to them down the road.); and (b) really evaluate if the "help" she is giving, is truly helping them. Might she be better off investing in 529s for the grandchildren? The adult children have been launched for years, let them fly.

[delamer]

What have these 3 offspring been doing with the 40K/year combined she's been gifting them? Perhaps they should consider setting up a separate fund to save for a house on their own. Hopefully, they haven't been using it to supplement a larger lifestyle than they can actually afford. She can continue doing this, but no way can she just give 100K x 3 on that portfolio.

I would not count the house. One earthquake or one fire and the market value for that house isn't going to be the same. (Fellow Californian here) We don't count the house.

We also cash flow gifts to our kids and I'm sure they would love a lump sum, but they really like the idea that they don't have to worry about us.

Continue small gifts she's been doing and let the adult children step up their saving and in a few years, they will have enough to buy a house themselves.

This is my concern, as well. These adult children are in their 30's, have been getting (smaller) annual gifts, and still can't scrape up a down payment? They need to live within their means, save their annual gifts, and buy a house they can afford. While well-intentioned, the mother could be putting them on a track of overbuying a house, that they then struggle to afford, requiring more gifts from Mom, who then can't pay for her own end-of-life care.

I know the mom is loving and generous, but she needs to step back and (a) think of her own needs (put on your own oxygen mask first! This also helps the children by not being a burden to them down the road.); and (b) really evaluate if the "help" she is giving, is truly helping them. Might she be better off investing in 529s for the grandchildren? The adult children have been launched for years, let them fly.

If the mother died tomorrow, the children would inherit her estate.

In those circumstances, should the children not use the inherited money for a house downpayment because they need to live within their means and buy a house they can afford?

Assuming that adult children are competent, productive adults, the financial gift of a house downpayment is not going to ruin them any more than inheriting those same money later in life would.

With rare exceptions, people don’t change their ways — financially or otherwise — as they age. Money will be used constructively at age 35 and at age 55. Or it won’t.

Of course the mother should make sure her own needs are covered before she increases her gifting. But that should be the focus of the gifting decision process in this case. If she was concerned about negative impacts caused by the gifts, then presumably she wouldn’t be considering them.

[DarthSage]

What have these 3 offspring been doing with the 40K/year combined she's been gifting them? Perhaps they should consider setting up a separate fund to save for a house on their own. Hopefully, they haven't been using it to supplement a larger lifestyle than they can actually afford. She can continue doing this, but no way can she just give 100K x 3 on that portfolio.

I would not count the house. One earthquake or one fire and the market value for that house isn't going to be the same. (Fellow Californian here) We don't count the house.

We also cash flow gifts to our kids and I'm sure they would love a lump sum, but they really like the idea that they don't have to worry about us.

Continue small gifts she's been doing and let the adult children step up their saving and in a few years, they will have enough to buy a house themselves.

This is my concern, as well. These adult children are in their 30's, have been getting (smaller) annual gifts, and still can't scrape up a down payment? They need to live within their means, save their annual gifts, and buy a house they can afford. While well-intentioned, the mother could be putting them on a track of overbuying a house, that they then struggle to afford, requiring more gifts from Mom, who then can't pay for her own end-of-life care.

I know the mom is loving and generous, but she needs to step back and (a) think of her own needs (put on your own oxygen mask first! This also helps the children by not being a burden to them down the road.); and (b) really evaluate if the "help" she is giving, is truly helping them. Might she be better off investing in 529s for the grandchildren? The adult children have been launched for years, let them fly.

If the mother died tomorrow, the children would inherit her estate.

In those circumstances, should the children not use the inherited money for a house downpayment because they need to live within their means and buy a house they can afford?

Assuming that adult children are competent, productive adults, the financial gift of a house downpayment is not going to ruin them any more than inheriting those same money later in life would.

With rare exceptions, people don’t change their ways — financially or otherwise — as they age. Money will be used constructively at age 35 and at age 55. Or it won’t.

Of course the mother should make sure her own needs are covered before she increases her gifting. But that should be the focus of the gifting decision process in this case. If she was concerned about negative impacts caused by the gifts, then presumably she wouldn’t be considering them.

I guess I'm not understanding your point. The mother is very much alive, and hopefully will remain comfortable in her remaining years. My concern is, with the mother's down payment help, the adult children could get into a more expensive home, which would also mean higher property taxes and possibly other costs. Meanwhile, as many have mentioned the mother runs the risk of over-gifting, and not having enough for herself in 10-20-30 years. The mom is already gifting, and the kids presumably want/need more. There's something wrong with that, IMHO. She doesn't have enough to give generously, and they aren't doing enough to manage to buy homes independent of Mom.

[delamer]

What have these 3 offspring been doing with the 40K/year combined she's been gifting them? Perhaps they should consider setting up a separate fund to save for a house on their own. Hopefully, they haven't been using it to supplement a larger lifestyle than they can actually afford. She can continue doing this, but no way can she just give 100K x 3 on that portfolio.

I would not count the house. One earthquake or one fire and the market value for that house isn't going to be the same. (Fellow Californian here) We don't count the house.

We also cash flow gifts to our kids and I'm sure they would love a lump sum, but they really like the idea that they don't have to worry about us.

Continue small gifts she's been doing and let the adult children step up their saving and in a few years, they will have enough to buy a house themselves.

This is my concern, as well. These adult children are in their 30's, have been getting (smaller) annual gifts, and still can't scrape up a down payment? They need to live within their means, save their annual gifts, and buy a house they can afford. While well-intentioned, the mother could be putting them on a track of overbuying a house, that they then struggle to afford, requiring more gifts from Mom, who then can't pay for her own end-of-life care.

I know the mom is loving and generous, but she needs to step back and (a) think of her own needs (put on your own oxygen mask first! This also helps the children by not being a burden to them down the road.); and (b) really evaluate if the "help" she is giving, is truly helping them. Might she be better off investing in 529s for the grandchildren? The adult children have been launched for years, let them fly.

If the mother died tomorrow, the children would inherit her estate.

In those circumstances, should the children not use the inherited money for a house downpayment because they need to live within their means and buy a house they can afford?

Assuming that adult children are competent, productive adults, the financial gift of a house downpayment is not going to ruin them any more than inheriting those same money later in life would.

With rare exceptions, people don’t change their ways — financially or otherwise — as they age. Money will be used constructively at age 35 and at age 55. Or it won’t.

Of course the mother should make sure her own needs are covered before she increases her gifting. But that should be the focus of the gifting decision process in this case. If she was concerned about negative impacts caused by the gifts, then presumably she wouldn’t be considering them.

I guess I'm not understanding your point. The mother is very much alive, and hopefully will remain comfortable in her remaining years. My concern is, with the mother's down payment help, the adult children could get into a more expensive home, which would also mean higher property taxes and possibly other costs. Meanwhile, as many have mentioned the mother runs the risk of over-gifting, and not having enough for herself in 10-20-30 years. The mom is already gifting, and the kids presumably want/need more. There's something wrong with that, IMHO. She doesn't have enough to give generously, and they aren't doing enough to manage to buy homes independent of Mom.

I believe we agree that the mother’s financial security is paramount, in terms of how she uses her money. We disagree as to whether she has enough to gift each child $100,00, given her financial situation.

But my basic question above was that if the mother died tomorrow, would you tell the kids “sure spend some of your inheritance on a house downpayment?”

And if yes, how is that inheritance different than a gift?

There is a segment of Bogleheads that think gifting has detrimental effects on the giftees, but that inheritances are just fine. I don’t really understand the distinction. My kids are just as apt to make bad (or good) decisions with a chunk of money tomorrow whether it is in the form of an inheritance or a gift.

(I also don’t think it is fair to judge a giftee’s ability to save (or not) without more information. There could be a disabled spouse, a disabled child, high medical bills, etc. that would limit people’s ability to save.)

[Coastfical]

It gives me great joy to gift to my 30+ year old children to enrich their lives (within my budget) (giving with a warm hand at this point) where the annual amt of up to $18k/yr is a meaningful amount that allows them to travel more extensively, make inroads on saving for a car or home, fully fund their retirement accounts etc. I am guessing that the mother in the OP may have similar motivation.

[LilyFleur]

I am a single mom age 64 in California with a paid-for condo. My condo is 26% of my total net worth (I define total net worth as portfolio + home equity.)

I do not EVER include my home equity when deciding on my portfolio withdrawal for a particular year. If I'm lucky, I won't have to go into nursing care and the kids will inherit the condo. If I'm not so lucky, the condo could be sold to pay for nursing home costs. And that would be good timing tax-wise because the tax-deductible cost of nursing home care would be balanced against some of the capital gains from the sale of my home. If my children inherit my home, they would inherit it at the stepped-up cost basis at the time of my death (ie, they would only pay capital gains on earnings after my death).

Notably, my children aren't here on the forum asking how much I can give them for a house downpayment if I included my home equity in my investable portfolio.

I gift to them yearly, and many years it goes straight into their Roth accounts. I have given one of them $20,000 toward a house (over two years). It was made clear when I gifted it that it was part of the $100,000 that I hope to be able to give them for a house downpayment some day. I pay less in taxes if I gift to them in smaller amounts per year, as most of my portfolio is in a tax-deferred account.

Parts of your original post are not transparent. If Mom "spends" $140,000 a year, does that mean she withdraws $102,000 from her portfolio every year in addition to her $38,000 of Social Security? (Are you including her tax bills in her total yearly spend? This needs to be stated very clearly in the original post.) Depending on the cost basis of the investments she sells each year in her brokerage account, her tax bill could vary quite a bit.

It appears that she is paying higher premiums for Medicare. Look at page 2 of the PDF at this link.
https://www.medicare.gov/publications/1 ... -costs.pdf

Additionally, taxes for singles in California proportionally are some of the highest taxes in the nation.

Do you know her federal and state tax rates? If she were to take $300,000 in additional income one year, in addition to what she spends on just herself, she could be paying very high taxes, in addition to sharply higher Medicare premiums that would hit two years later. Taxes are a cost that must be computed as part of her annual expense. How is she doing on home maintenance? Is there a possibility she could get hit with a high bill for a new roof or re-plumb?

What type of a tax strategy is she using? How much of her brokerage account is cost basis, and how much is capital gains? Or perhaps she has a very large cash position in the brokerage account that she could gift from without increasing her taxes? How does she decide what investments to sell each year? Are there investment lots with a much lower cost basis that could be sold in years that she gifted more money to her children? I would not recommend that she spend out of her tax-deferred account, as that could be used mostly tax-free for nursing home care, which is largely tax deductible.

Please update this in the original post if you want to receive substantive advice from the forum.

[hvaclorax]

This post is certainly timely. Many millions of dollars will pass to the next generation via inheritance. The cons are well known. Pros stretch to make a strong argument for early or more gifting. Mom rules, at least mine does.

[LilyFleur]

What have these 3 offspring been doing with the 40K/year combined she's been gifting them? Perhaps they should consider setting up a separate fund to save for a house on their own. Hopefully, they haven't been using it to supplement a larger lifestyle than they can actually afford. She can continue doing this, but no way can she just give 100K x 3 on that portfolio.

I would not count the house. One earthquake or one fire and the market value for that house isn't going to be the same. (Fellow Californian here) We don't count the house.

We also cash flow gifts to our kids and I'm sure they would love a lump sum, but they really like the idea that they don't have to worry about us.

Continue small gifts she's been doing and let the adult children step up their saving and in a few years, they will have enough to buy a house themselves.

This is my concern, as well. These adult children are in their 30's, have been getting (smaller) annual gifts, and still can't scrape up a down payment? They need to live within their means, save their annual gifts, and buy a house they can afford. While well-intentioned, the mother could be putting them on a track of overbuying a house, that they then struggle to afford, requiring more gifts from Mom, who then can't pay for her own end-of-life care.

I know the mom is loving and generous, but she needs to step back and (a) think of her own needs (put on your own oxygen mask first! This also helps the children by not being a burden to them down the road.); and (b) really evaluate if the "help" she is giving, is truly helping them. Might she be better off investing in 529s for the grandchildren? The adult children have been launched for years, let them fly.

If the mother died tomorrow, the children would inherit her estate.

In those circumstances, should the children not use the inherited money for a house downpayment because they need to live within their means and buy a house they can afford?

Assuming that adult children are competent, productive adults, the financial gift of a house downpayment is not going to ruin them any more than inheriting those same money later in life would.

With rare exceptions, people don’t change their ways — financially or otherwise — as they age. Money will be used constructively at age 35 and at age 55. Or it won’t.

Of course the mother should make sure her own needs are covered before she increases her gifting. But that should be the focus of the gifting decision process in this case. If she was concerned about negative impacts caused by the gifts, then presumably she wouldn’t be considering them.

I guess I'm not understanding your point. The mother is very much alive, and hopefully will remain comfortable in her remaining years. My concern is, with the mother's down payment help, the adult children could get into a more expensive home, which would also mean higher property taxes and possibly other costs. Meanwhile, as many have mentioned the mother runs the risk of over-gifting, and not having enough for herself in 10-20-30 years. The mom is already gifting, and the kids presumably want/need more. There's something wrong with that, IMHO. She doesn't have enough to give generously, and they aren't doing enough to manage to buy homes independent of Mom.

I believe we agree that the mother’s financial security is paramount, in terms of how she uses her money. We disagree as to whether she has enough to gift each child $100,00, given her financial situation.

But my basic question above was that if the mother died tomorrow, would you tell the kids “sure spend some of your inheritance on a house downpayment?”

And if yes, how is that inheritance different than a gift?

There is a segment of Bogleheads that think gifting has detrimental effects on the giftees, but that inheritances are just fine. I don’t really understand the distinction. My kids are just as apt to make bad (or good) decisions with a chunk of money tomorrow whether it is in the form of an inheritance or a gift.

(I also don’t think it is fair to judge a giftee’s ability to save (or not) without more information. There could be a disabled spouse, a disabled child, high medical bills, etc. that would limit people’s ability to save.)

It's relevant that out of Mom's $3.575M total net worth (including house equity), only 475k (13.29%) is in a tax-deferred account. At the time of her death, the children would essentially receive about 87% of her estate (both her house equity and her brokerage account) tax-free (they would inherit at the stepped-up cost basis at the time of her death and would only owe capital gains on earnings after the date of her death). If she gifts from any of any of her assets while alive, the tax bill is likely to be much higher, as she is in the single tax brackets in a high-tax state. California taxes capital gains at the regular income tax rate. In the single tax brackets, the OP's mother enters the state 9.3% tax bracket at $68,350. It could be a big tax bite. The state does not tax her Social Security, though, which helps.

It seems to me that the current level of giving would be good to maintain, with the caveat that if Mom hits large expenses, it might not happen.

[delamer]

If the mother died tomorrow, the children would inherit her estate.

In those circumstances, should the children not use the inherited money for a house downpayment because they need to live within their means and buy a house they can afford?

Assuming that adult children are competent, productive adults, the financial gift of a house downpayment is not going to ruin them any more than inheriting those same money later in life would.

With rare exceptions, people don’t change their ways — financially or otherwise — as they age. Money will be used constructively at age 35 and at age 55. Or it won’t.

Of course the mother should make sure her own needs are covered before she increases her gifting. But that should be the focus of the gifting decision process in this case. If she was concerned about negative impacts caused by the gifts, then presumably she wouldn’t be considering them.

I guess I'm not understanding your point. The mother is very much alive, and hopefully will remain comfortable in her remaining years. My concern is, with the mother's down payment help, the adult children could get into a more expensive home, which would also mean higher property taxes and possibly other costs. Meanwhile, as many have mentioned the mother runs the risk of over-gifting, and not having enough for herself in 10-20-30 years. The mom is already gifting, and the kids presumably want/need more. There's something wrong with that, IMHO. She doesn't have enough to give generously, and they aren't doing enough to manage to buy homes independent of Mom.

I believe we agree that the mother’s financial security is paramount, in terms of how she uses her money. We disagree as to whether she has enough to gift each child $100,00, given her financial situation.

But my basic question above was that if the mother died tomorrow, would you tell the kids “sure spend some of your inheritance on a house downpayment?”

And if yes, how is that inheritance different than a gift?

There is a segment of Bogleheads that think gifting has detrimental effects on the giftees, but that inheritances are just fine. I don’t really understand the distinction. My kids are just as apt to make bad (or good) decisions with a chunk of money tomorrow whether it is in the form of an inheritance or a gift.

(I also don’t think it is fair to judge a giftee’s ability to save (or not) without more information. There could be a disabled spouse, a disabled child, high medical bills, etc. that would limit people’s ability to save.)

It's relevant that out of Mom's $3.575M total net worth (including house equity), only 475k (13.29%) is in a tax-deferred account. At the time of her death, the children would essentially receive about 87% of her estate (both her house equity and her brokerage account) tax-free (they would inherit at the stepped-up cost basis at the time of her death and would only owe capital gains on earnings after the date of her death). If she gifts from any of any of her assets while alive, the tax bill is likely to be much higher, as she is in the single tax brackets in a high-tax state. California taxes capital gains at the regular income tax rate. In the single tax brackets, the OP's mother enters the state 9.3% tax bracket at $68,350. It could be a big tax bite. The state does not tax her Social Security, though, which helps.

It seems to me that the current level of giving would be good to maintain, with the caveat that if Mom hits large expenses, it might not happen.

This is a fundamental disagreement.

I believe that people should decide what they want to spend their money on today, and then withdraw (or transfer) from their accounts in the most tax-efficient manner to acquire those funds.

I don’t believe that people should avoid withdrawing (or transferring) from their accounts just so they won’t have to pay current taxes. If they have identified a use for the funds that will improve their own lives or benefit people or causes that they care about, then taxes being due shouldn’t be an obstacle.

And that’s especially true if the goal in not doing the withdrawal/transfer is a potential tax reduction many years down the road. Which may not come to fruition either due to personal circumstances or changes in tax laws.

[hvaclorax]

If the mother died tomorrow, the children would inherit her estate.

In those circumstances, should the children not use the inherited money for a house downpayment because they need to live within their means and buy a house they can afford?

Assuming that adult children are competent, productive adults, the financial gift of a house downpayment is not going to ruin them any more than inheriting those same money later in life would.

With rare exceptions, people don’t change their ways — financially or otherwise — as they age. Money will be used constructively at age 35 and at age 55. Or it won’t.

Of course the mother should make sure her own needs are covered before she increases her gifting. But that should be the focus of the gifting decision process in this case. If she was concerned about negative impacts caused by the gifts, then presumably she wouldn’t be considering them.

I guess I'm not understanding your point. The mother is very much alive, and hopefully will remain comfortable in her remaining years. My concern is, with the mother's down payment help, the adult children could get into a more expensive home, which would also mean higher property taxes and possibly other costs. Meanwhile, as many have mentioned the mother runs the risk of over-gifting, and not having enough for herself in 10-20-30 years. The mom is already gifting, and the kids presumably want/need more. There's something wrong with that, IMHO. She doesn't have enough to give generously, and they aren't doing enough to manage to buy homes independent of Mom.

I believe we agree that the mother’s financial security is paramount, in terms of how she uses her money. We disagree as to whether she has enough to gift each child $100,00, given her financial situation.

But my basic question above was that if the mother died tomorrow, would you tell the kids “sure spend some of your inheritance on a house downpayment?”

And if yes, how is that inheritance different than a gift?

There is a segment of Bogleheads that think gifting has detrimental effects on the giftees, but that inheritances are just fine. I don’t really understand the distinction. My kids are just as apt to make bad (or good) decisions with a chunk of money tomorrow whether it is in the form of an inheritance or a gift.

(I also don’t think it is fair to judge a giftee’s ability to save (or not) without more information. There could be a disabled spouse, a disabled child, high medical bills, etc. that would limit people’s ability to save.)

It's relevant that out of Mom's $3.575M total net worth (including house equity), only 475k (13.29%) is in a tax-deferred account. At the time of her death, the children would essentially receive about 87% of her estate (both her house equity and her brokerage account) tax-free (they would inherit at the stepped-up cost basis at the time of her death and would only owe capital gains on earnings after the date of her death). If she gifts from any of any of her assets while alive, the tax bill is likely to be much higher, as she is in the single tax brackets in a high-tax state. California taxes capital gains at the regular income tax rate. In the single tax brackets, the OP's mother enters the state 9.3% tax bracket at $68,350. It could be a big tax bite. The state does not tax her Social Security, though, which helps.

It seems to me that the current level of giving would be good to maintain, with the caveat that if Mom hits large expenses, it might not happen.

This is a fundamental disagreement.

I believe that people should decide what they want to spend their money on today, and then withdraw (or transfer) from their accounts in the most tax-efficient manner to acquire those funds.

I don’t believe that people should avoid withdrawing (or transferring) from their accounts just so they won’t have to pay current taxes. If they have identified a use for the funds that will improve their own lives or benefit people or causes that they care about, then taxes being due shouldn’t be an obstacle.

And that’s especially true if the goal in not doing the withdrawal/transfer is a potential tax reduction many years down the road. Which may not come to fruition either due to personal circumstances or changes in tax laws.

Delamer,
Thanks for your erudition. And I might say the truth in your statement applies to Roth conversions as well. Good on you.Yes I know I am off subject.

[Irene]

Gifting appreciated stock directly might make sense, depending on her and the children's tax brackets, and how soon the children would need to sell.