Tips For Giving Away Money To Family Members (2024)

Sometimes there are good reasons for not leaving each of your children an equal inheritance. Perhaps one child received more of your help during your lifetime. Maybe one of your children has special needs and requires a trust to support him. Or you could have a much younger child who will need more financial assistance for such things as education. Whatever your reasons for dividing your estate unequally, it’s your decision. It’s also your decision as to whether you want to discuss your thinking with your children. “Some clients talk to their kids about it, and some don’t want to debate with their kids,” says attorney Laura Beck, a partner with Cummings & Lockwood in Stamford, Connecticut, specializing in estate planning. No matter how and why you make a division of assets, you can’t prevent dissatisfaction among your children. You can, however, try to minimize the damage after you’re gone.

How to do it:If you don’t want to explain unequal bequests while you’re alive, Beck suggests you consider leaving behind a letter explaining your motivations. Otherwise, she says, it’s more likely you’ll be seen either as being unfair or having loved one child more than another. To reduce the chances of an ugly battle over the will’s terms and validity, she additionally suggests inserting a no-contest clause in the will — one that says, essentially, “If you challenge this, you’ll get nothing.”

You want the next generation to enjoy the family vacation home

Solution:Establish a company.

First off, don’t assume your kids want that memory-filled house by the lake. Ask. If none want it, that’s that: Sell when the time is right for you. If just one doesn’t want it but the other kids do, consider leaving that child an asset comparable in value to what the other ones get.

For the kids who take on the vacation house, your goal is to work out in advance all the issues that could arise after the transfer. The best way to do that is to formalize a plan. David Fry, an attorneyandcoauthor ofSaving the Family Cottage: A Guide to Succession Planning for Your Cottage, Cabin, Camp or Vacation Home, recommends you achieve this by transferring the house to a limited liability company (LLC) and giving shares in it to the kids. Spell out your children’s rights and responsibilities in the LLC’s operating agreement, including how maintenance expenses will be shared and when different families can use the property. Mostimportant, if someone wants to sell his or her share, the LLC agreement should provide a way to pursue this (typically, at a price less than the person’s share of the property’s full value).

How to do it:Hire a lawyer, because setting up an LLC of this type and creating and writing an operating agreement can be complicated. One tip: Define the universe of eligible owners as lineal descendants and not spouses. That prevents a divorce from creating an ownership battle.

You want to share money held in an IRA

Solution:Do it now ... or get charitable at 70½.

Hey, it’s your money — you can take whatever you wish from an IRA once you reach age 59½. The issueis mostly taxes; a large withdrawal could push you into a higher tax bracket, increase the taxes on your Social Security payments and boost your Medicare premiums. If you give money from a traditional IRA distribution to your child (or anyone else), you’ll have to pay income taxes on what you pulled out, just as you would if you kept the money. Beginning in 2018, you can give up to $15,000 (or $30,000 if you’re married) to a person in a year without having to tell the IRS. Above that, you will need to file a gift tax return, though you won’t have to pay any taxes on the gift now. The total lifetime tax exemption for your estate and gifts is $11.2 million per individual, so odds are that the IRS won’t ever collect.

What about giving IRA money to charity? If you’re 70½ or older, you can transfer up to $100,000 per person per year directly from a traditional IRA to a public charity you want to support, and the money is completely excluded from income taxes. Even better: It’s still considered part or all of your minimum mandatory withdrawal for the year. You won’t even have to itemize your deductions to gain the taxbenefit,since the funds come out of your IRA without any tax consequence.

How to do it:Contact your IRA provider and get a copy of its charitable-distribution form. You’ll provide the name of one or more charities to which you wish to donate, and your IRA provider will send a check directly to the charity. Two caveats: You can’t do this with a 401(k) required minimum distribution, and you don’t get any tax benefit donating money from a RothIRA,since Roth distributions aren’t subject to federal taxes in the first place.

Your car or boat is gathering dust

Solution:Avoid the middleman.