Gifting Money to Family | On Demand Webinar

[Music] Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Welcome to today’s Savant live webinar. Thank you for joining us today. We’re going to be discussing gifting to family and how to minimize Uncle Sam’s cut. My name is Alaina Davalos. I’m a wealth transfer advisor here at Savant Wealth Management and joining me today is financial advisor Patty Black. Thanks Alaina. I’m glad to be here today. Today’s topic is one of my favorites. We often hear from clients that giving to family is one of their most important, if not the most important goal that they have. I hope we can share some tools and tricks and resources that may help you if you’re thinking about giving to your family. So, some of the themes that we’ll be talking about today include how gift taxes work, when those taxes are applicable, and what tax rates also look like. We’ll also be discussing the concept of gifting with warm hands versus cold hands. Generally, you gift with warm hands when you’re with us and cold hands when you’re well, not with us anymore. And this concept is the difference in making gifts during your lifetime, allowing you to see the impact and share in the enjoyment of the gift versus passing wealth to your family or other beneficiaries at your death. We’ll also be discussing who to give to. Every gift has a giver and a recipient. Today, we’ll focus on when individuals like family are the best recipients as opposed to charitable organizations. The good news is if you are curious about passing wealth to future generations at your death or giving to charitable organizations you’re passionate about, we do have a lot of resources to help answer your questions. So, while we won’t be able to answer everyone’s questions live today, please feel free to leave those questions in the Q&A box on the bottom of your screen and we’ll be in touch with you. You can also visit the Savant YouTube page where you will see past webinars on these topics or reach out to our team and we can connect you with that someone who can help with that additional information. Also, while we won’t be sharing our slides with the attendees today, we will be emailing out a recording of this webinar in the next couple of days. And with that, Patty, can you tell us a bit about the agenda for today’s chat? You you’ve got it, Alaina. We’re going to talk about several topics today. So, we’re going to start with talking about priorities, pitfalls, and purpose. What are the things you need to think about before you begin giving to family members? And what are some pitfalls that we want to make sure you steer clear of? Then Alaina is going to talk about tax law. What are the key rules around giving and what are some common misconceptions that people often have? We’ll move on to talk about tools. What are the different ways of giving to family members and what are the things to be mindful of when you use those different tools? Last, we’ll talk strategy and give you some real life examples of what family giving looks like in practice. So, with that, let’s get started.

As I just mentioned, there are some things we want you to be mindful of before you start a gifting plan. So, let’s talk about that. Let’s talk about priorities. Before you begin giving to your family, you want to take what you may feel like is a selfish approach, and that’s making sure your own financial future is secure first. I bet everyone on today’s webinar has heard the expression from the flight attendant, put the oxygen mask on yourself first before helping anyone else. The same thing applies when it comes to making financial gifts. You want to make sure that your own financial future is secure before you begin giving to others. Doing that may also relieve some hesitation on the part of your recipients. Sometimes adult children may be uncomfortable receiving a gift because they worry that you may need that money down the road. So confirming with them that I’ve checked and double checked and I’m in good financial shape to do this gift may alleviate some of their concerns. Now, when you start the giving journey, I want to encourage you to seek the help of a professional. Whether that’s to double check your financial security for the future or whether that’s to implement some of the giving strategies that we talk about. Next, let’s talk through some pitfalls. I’ve worked with clients a number of years, and sometimes I’ve had them come in and they’ve run their own set of projections about their financial future. They may have created their own spreadsheet. They may have used an online calculator and they’re curious how do their numbers compare to the numbers that I’m running. And there are a couple blind spots that I see with those calculations. The most common is not taking into account inflation. What you’re spending today is not going to be the same as what you’re spending in 10, 20, or 30 years from now. inflation is really going to make an impact and you have got to take that into account when you’re running your numbers. Second, a second blind spot I see is with using an abstract average rate of return that may or may not be applicable to your personal situation. In addition, using some average rate of return to quote to use another well-known quote, past performance is not indicative of future results. So that average historical rate of return may or may not be appropriate for the future. And then I sometimes see people use rates of return that are just not appropriate for how they are invested. For example, someone who used the historical rate of return for the S&P 500 when their money is invested much more conservatively than that. To quote Yogi Barra, it is really tough to make predictions especially about the future. So, another pitfall I sometimes see people fall into is not taking into account what ifs. What if you die prematurely or your spouse dies prematurely? How does that impact your Social Security benefits or any pension benefits that you may receive? What happens if you need long-term care? Have you factored in those potential costs into your planning projections? To summarize this slide, I would just say don’t overcommit.

You also want to share the purpose of the gift that you’re making. You want to not only communicate, but you really need to overcommunicate. If you have a specific purpose that you want the recipient to use that gift for, make sure it is very clear what your purpose is. And then as you’re making gifts, you may also want to share your thoughts about future gifts. Is this a one-time gift or is it something you plan on doing each year? If you plan on making gifts each year, is it likely to be about the same amount that you’re giving now or will it vary? Trying to give some guidance to your beneficiaries will be very helpful. And then grip gifts are a great opportunity to pass on your wisdom, your values. What are the things that are really important to you? What are the money lessons that you have learned through your life that you can pass on to the recipient to help them in using this money wisely? It’s a great opportunity to document those things for the for your family.

That was great. Thanks, Patty. You all better watch out for those pitfalls now. So, switching gears, let’s take a look at how the law treats lifetime gifting. You know, Patty and I regularly meet and consult on the most tax efficient ways to give during life. You know, we tend to hear some of the same misconceptions or misinformation over and over. Before we go into those misconceptions, I want to make one thing clear. I will be talking about two different taxes. income and estate and gift taxes. I know that’s technically three, but estate and gift we’ll combine for today. Few people realize that all transfers of money or things are taxable under our current tax laws. But there’s usually exemptions or exceptions or exclusions, try saying that three times fast, available that stop actual taxes from being paid. Income taxes we are all familiar with. It’s the personal tax paid on earned income, dividends, etc. Estate taxes, also known as the wealth tax, are the taxes paid when someone passes away and before their estate can be transferred to their intended beneficiaries, taxes are levied if owed. We do not hear about estate taxes that often, certainly nowhere near as often as income taxes. So one of the most common misconceptions is that all gifts are taxable either to the donor or to the recipient. So this is not a cut and dry question. The easy half of this answer is that the recipient is never taxed. No income tax liability, no estate tax liability, nothing for them to report on any return when they receive assets as a gift. The donor, however, the person giving the gift may be subject to gift taxes depending on the size of the gift. We’re going to do a deep dive into that. But let me first say that another misconception that gifts to individuals such as friends or family are income tax deductible to the donor, the person making the gift is never the case. There are no income tax benefits at least on a surface level to doing lifetime gifting.

So looking at the donor, which is the person doing the gifting, how much gift tax is due? And I say that in quotes, it depends on the amount. There is a current annual exclusion amount of $19,000 per person. That means that you can gift up to $19,000 without owing any gift tax or having to do any reporting to the IRS of that gift. A married couple can do double that gift. Makes sense. There’s two people. So, a married couple can gift up to $38,000 to anyone without having to notify the IRS of that gift. This is the easiest transaction and the po the most applicable to most Americans. So, as you can see on the chart here, the annual exclusion has steadily grown since 2011 and has reached that current amount together. 19 19 38 makes sense. But what happens then if you gift more than $19,000? And let me add one more thing. That $19,000 doesn’t just mean liquid assets. You know, it could mean business interest. It could mean stock. It’s anything that has a combined fair market value of $19,000. It’s not just cash. That’s when you use some of your lifetime federal estate tax exemption amount. So that number typically varies by year because it adjusts for inflation. For example, each American had $13.99 million exemption in 2025, meaning they can pass $13.99 million either during life or at death without having to pay any estate taxes. This very high exemption is why we don’t typically hear about estate taxes that often because it doesn’t apply to most families. That federal estate tax exemption though, that amount has fluctuated throughout history and it’s currently the highest it’s ever been. 13.99 million in 2025, 15 million in 2026 thanks to Congress passing the One Big Beautiful Bill Act. Now again, the exemption amount is how much you can transfer without having to pay taxes. One of the big benefits of doing lifetime gifting is that you can move appreciating assets out of your taxable state. So when you gift, you haven’t just moved that asset from any future estate taxes, you’ve also removed any future growth in that asset.

One more thing to note in this map that you see, you’ll also see which states impose their own estate and inheritance tax. The difference between an estate tax and inheritance tax is that the estate tax is paid by the estate of the person that died. Assets are only distributed out of the estate after any applicable tax is paid. With an inheritance tax, the beneficiary who receives the inheritance pays the tax personally. While there are typically exemptions, this is something that you should talk to your advisor about, your lawyer, CPA, financial advisor, because these taxes can get pretty excessive. And you will see that little tiny Maryland right there does have both an estate and an inheritance tax. So, if you are a Marylander, please discuss this with your advisor ASAP. However, just like the federal estate tax, these states do typically have varying exemption amounts. But unlike the estate tax, which is the flat 40% rate, many of these states have progressive rates. And one thing that I want to emphasize here is that the state estate tax is imposed on top of the federal estate tax. You may be able to get a deduction of your federal estate taxes, but typically if you owe state and federal, you will pay both. So, what does it mean when your state owes federal and state estate taxes? Your net worth at your death is, let’s say, $20 million. It’s a great place. I always recommend clients have an estate tax. You live in the fine state of Illinois. you have a $4 million state estate tax bill and you would owe about $5 million in federal estate taxes. That gets to be a very high bill very quickly again because that rate is 40% for federal and Illinois like I said is very progressive. So, your estate would end up owing probably about $2 to3 million in taxes. Lifetime gifting is something that you could talk to your advisor about to try to limit your estate tax exposure.

So, let’s say you do talk to those advisors and if you think that it would be worthwhile to your estate to do some of that lifetime gifting for tax planning purposes, I want to go over the steps of gifting with you as well as reiterate the benefits and risks. The first step of gifting is deciding whether you want to leave assets to someone or you want to gift assets to someone in trust or outright. If you decide to leave assets in trust, you will of course have to set up the trust, sign the trust agreement, do all that. And you can do either. You can always gift assets directly to someone. You do not need a trust. Next, you have to prepare your assets for transfer. It depends on what that asset is. You know, you may need to get approval or permission from business partners, spouses, things like that. Get your ducks in a row during this time. Third, you’re going to transfer the assets. Sign the deeds, move the accounts, assign the business interest. The day that those documents get signed or the assets get moved to the recipient is the day that you’ll need to provide a valuation for, which is the fourth step valuations. Once you have a date and discernably gifted assets, start working on valuations. The IRS requires you to provide adequate disclosure for the fair market value of that asset. What that means will depend on the asset itself. How much is this asset worth to a third party? Lastly, you file those trust agreements if you have them, the transfer documents, anything related to these transactions with a 709 gift tax return. The gift tax return is due on April 15th, tax day of the year after the gift is made along with your personal income tax return. However, you can still file an extension if you do file an extension for your personal returns as well to October 15th. The best advice I will give you today is if you are going through this process, do not wait until September of that following year to try to get valuations and appraisals done. What this whole process does is a timely filed 709 starts a three-year statute of limitations for the IRS to contest the values of the gift that you’ve made. And in exchange for taking these steps, you’ll not only use this historically high estate tax exemption that we’ve had, you’ll also freeze the value of any growth of those gifted assets, and you may be able to provide additional creditor protection. So, not to be too cliche, but with great word reward does come some risk. You know, first off, please know that this is not usually a cheap endeavor. And if it is something has gone wrong, you want to make sure you work with an attorney who specializes in this area of law. You will pay for that expertise. Same goes for the CPA who files your return and who you get to appraise your assets. Also, generally speaking, assets that are gifted do not get a step up in basis for income tax purposes, which is why it’s important to analyze which assets you’re gifting before transferring them to a trust or other beneficiary. And lastly, your gift tax return can get audited. The IRS can come back and challenge the values that you’ve used. Anytime you’re audited, your legal expenses challenging it can add up.

Alaina, that was great. Thank you for sharing all that information, and I really like your recommendation for everybody to have an estate tax problem. I I wholeheartedly agree. Let’s move on to talk about different tools that you can use to make gifts to family members. So the chart that you’re looking at is not an all-encompassing list, but it does reflect the most common assets that we see individuals give to family. So we’ll start at the top with cash because it is the most straightforward. You can give cash, you can write a check, you can transfer funds electronically to your family members. The thing to be mindful of when giving cash is that you need to track the amount that you’re giving during the year to know whether you’re bumping up against that annual exclusion amount that Alaina mentioned, which is $19,000 in 2025. Next, you could use cash again, but you could use this cash to fund a beneficiary’s IRA account or Roth IRA account. You have to keep in mind that there are income limits that determine whether someone qualifies to contribute to one of these types of accounts. There are also limitations on how much can be contributed to an IRA or a Roth IRA each year. Let me just give you an example. Say you’ve got a 17-year-old grandson who had a part-time summer job and earned $3,600. You could give your grandchild $3,600 to use to open a Roth IRA account. And then that Roth IRA account could be funded with $3,600 and would be a great start for saving for retirement. You can also give securities like shares of stock, mutual funds, exchange traded funds. Alaina alluded to this earlier, but when you’re giving securities, you’re transferring both the market value and your cost basis. So, let’s say you bought some Apple stock back in 2005, and at that time, Apple was trading at about a dollar a share. Today, it’s trading at about $200 a share. If you decide to give some of your Apple stock to your daughter, you’re giving her that share that’s now worth $200, and you’re also giving her your $1 cost basis. If your daughter decides to sell that stock, she’s going to face a pretty significant capital gain that the idea here is share that information. Make sure that there are no surprise tax bills that come up. Likewise, if you’re giving real estate, you’re giving your market value and your cost basis. We’re going to walk through an example of that a little later on as we talk about strategies. And then at the bottom of this list are loans. They’re a great option when you want to give a larger amount to your family member. A couple of things to be mindful of here. You need to have a formal loan agreement and you have to charge interest. The interest is charged at the applicable federal rate and it’s determined by the length of the loan agreement. Few more assets that you can give away. It’s technically possible to give from your IRA or 401k or 403b, but it’s rare to do so because of the negative income tax consequences. Alaina will talk soon about how you can leave these accounts to beneficiaries at your death. You may also be able to give shares if you own a closely held business, but you’ve got to read the operating agreement and you need to check with any co-owners before you proceed. And last, life insurance. If you’ve got a life insurance policy, you can give that to a family member. The important thing to be mindful of here is that if you die within three years of giving that life insurance policy away, that policy will still be included in your taxable estate. I hope you can hear from the stories we’re sharing the importance of getting professional help as you’re thinking about implementing a giving strategy.

So, Patty might disagree with this statement, but I’m going to say it. Estate planning is the best tool that you have to preserve your wealth, not just for your children and your grandchildren, but as far down your family tree as your bloodline will go. And if it’s right for your family and your set of circumstances, an estate plan that establishes trust for your descendants or other beneficiaries is the best way to preserve generational wealth and minimize both long-term estate tax exposure and creditor exposure. So, the sort of trust that I’m going to be talking about right now is referred to as a descendants trust or a cascading trust because once you put assets into the trust either during lifetime or a death, the assets will stay in trust for cascading generations. So, first to your kids, then to your grandkids, and so on. You know, another term that you may be more familiar with is trust fund. So, that’s right. We’re going to be talking about how to create trust funds for your kids. Now, a lot of times these trusts get a bad reputation because they’re seen as only being for really wealthy people or, you know, you’re trying to control assets from the grave. This is a phrase or a concern that I usually try to avoid because it has a pretty negative connotation. You know, no one wants to be labeled as a control freak. But hear me out. If a trust works for your family, you can provide significant asset protection for a possible unlimited amount of generation. you know, protection from divorce, from those unknown creditors, and from future estate taxes. How long the trust lasts depends on state law. You know, it can range from 90 years to an unlimited number of years. And most states, trust laws are only getting more and more flexible. So, why doesn’t everyone do this? Because obviously when we’re talking about lifetime gifting, you have that option that I mentioned earlier to give outright to someone or to give in trust. Why do we only associate trust funds with the wealthy? That’s a question I get from a lot of clients when we start talking about these descendants trusts. For starters, you know, a trust can be more complicated to both set up and administer. While trusts are often established under a will or under a revocable living trust, you can create them during lifetime. This can be a vehicle that you establish and that you gift to during your life. When you set up this trust, it’s the same whether you’re living or whether at death. You know, you have a lot of decision- making to do. You have to pick a trustee. You have to pick distribution terms for the trust. You know, meaning when is income and principal distributed to the beneficiary. You have to pick how long the trust is going to last. But on the flip side, you know, this helps to create your legacy to protect those assets that you’ve worked so hard for. You know, giving your assets to beneficiaries, to your descendants in this protected vehicle can protect all that wealth. Again, this is my theme from divorce, creditors, and possible future estate taxes. I tell our clients all the time that these descendants trust can with good management and, you know, not too many family branches spawning off last for centuries. So, I don’t want to get too bogged down in trust formation because it’s such an advanced topic in and of itself, but I will give you a quick overview. You know, you name a trustee to manage a trust fund on behalf of the beneficiary. You can give your trustee as much or as little guidance control from the grave as you feel comfortable with. If you do decide to set up trust for your descendants, they’re most often times created under your will or revocable trust and only effective at your death. However, like I said, they can be created during lifetime. So, if you want to do lifetime gifting and you do want to create this safety vehicle, you can establish an irrevocable trust. Now what makes that trust irrevocable is that typically you cannot change it. And of course then the other option is to make that outright distribution. That’s a much easier plan. You know I can’t lie about that. You decide you want to make a gift, you know, let’s say cash, certain amount of cash to your son, a certain amount of cash to your daughter outright, free of trust. That is going to be the most hands-off, easiest way to do lifetime gifting. You can do that same sort of gifting at death. You know, you can make that outright gift under your will. You can name your kids as outright beneficiaries under your 401k, your life insurance. Easy peasy. That is a low complexity plan. You do not have any asset protection and it is possibly more income tax efficient because trusts do have they accelerate greater with their income taxes. So there is a lot of thought that goes into gifting outright or in trust.

Alaina, I just want to go on record that I wholeheartedly agree with you that estate planning is the best tool we’ve got to pass on wealth to the next generation. So, thank you, Patty. On the same page, I shouldn’t have doubted you. Yes. Thank you, Alaina. So, there’s always exceptions to rules. So, I want to walk through a few special circumstances that may be helpful for people to know about. If you’ve got a goal of helping pay for education expenses, 529 plans are a great vehicle to make that happen. And 529 plans have a special exemption called super funding that allows you to make 5 years worth of gifts in one year. 529 plans also give the account owner a good bit of control. That means that the account owner can change the beneficiary if circumstances change over time. And some people really like having that measure of control. Medical expenses is, as many of us know, can get very costly. So if you have someone in your family where you’re making annual exclusion gifts and they’re also facing expensive medical bills, you can make those medical expense payments directly to the provider for that benefit for their benefit. And you can do that in addition to the annual exclusion gifts that you’re already making. It’s critical here to make the payments directly to the provider, whether that’s the doctor or the hospital or the insurance company. Similarly, if you’re making annual exclusion gifts and you want to pay tuition for one of your family members, you can do that on top of the annual exclusion amount. What you have to remember is this only applies to tuition. You can’t pay for room and board or other education expenses. And again, with both medical expenses and tuition, you have to make those payments directly to the provider. You can’t give money to your family member for them to go ahead, I’m sorry, for them to then pay that bill to the provider. So, one thing I just want to add on to that is, you know, when we have this annual exclusion gift amount, you know, however much that is, $19,000, typically when you go over making that gift, you have to file that 709 gift tax return notifying the IRS that you’ve exceeded that gifting amount and that you’re eating in to your lifetime exemption amount. this what Patty is talking about here for medical expenses and tuition. When you make those payments directly, even if they’re above that 19,000 or however much it is that year, you don’t use any of your lifetime exclusion amount either. So, you’re not penalized anywhere. And that can have a huge impact on your taxable estate if your estate is subject to estate taxes.

So I think let’s go into some strategies. What do you think Patty? Let’s do it Alaina. So, the first case study that we are going to talk about here, in December, Bob and Mary decided that they would like to give their son Tom $50,000 in cash for a down payment on his first home purchase. If Tom needs the money by mid January, what are Bob and Mary’s options for making that gift? So, it’s so funny that we’re talking about this today because I literally had a friend of mine a few weeks ago ask me this exact question. You know, his parents want to give him some money for a home purchase. What is the best way to do that tax- wise? He asked. And don’t people do this all the time? And yes, I said yes. People always are wanting to do this. You know, this is very common planning. We work daily on strategies like this. So in this scenario, what are Bob and Mary’s options? You know, the first issue that we see here is that $50,000 exceeds the annual exclusion amount that Bob and Mary could gift to their son easily without having to use their lifetime exemption amount. In 2025, that exemption amount is $19,000. So, they could easily give him $38,000. No questions asked, no tax filings, nada. But what about that additional $12,000 he needs? Option A, gift him the $50,000 and file a 709 gift tax return notifying the IRS that they’ve used $12,000 of their lifetime exemption. That’s one option. It’s a little bit more administratively burdensome because it involves an additional tax filing, which usually means additional CPA fees, but it’s not the end of the world. Option B, a little bit better, but requires some planning. If Tom needs this money in January, Bob and Mary could gift him the $38,000 in December. The taxable year resets in January and they could make an additional gift of the $12,000 on January 1st. No tax forms required because these gifts were made in different years. Boom. You know, a little bit of planning goes a long way. Another thing to remember is that that $19,000 annual exclusion amount is per person. Bob gives Tom 19,000. Mary gives Tom 19,000. That’s how we got to 38,000. However, if Tom was married, Bob could also give Tom’s wife 19,000. Mary could give Tom’s wife 19,000. Bob and Mary could collectively give Tom and his wife $76,000 in annual exclusion gifts without having to file that 709 and use their lifetime exemption amount. I’m telling you, planning pays off. Yet, yet another comment I agree with, Alaina. Planning does pay off. And let’s talk about that with scenario number two. Case study number two. So, here we’ve got Sally and Denise. Sally’s 84. Her daughter Denise is 64. They live together in Sally’s home. And it’s a house that Sally and her late husband bought together back in 1975 for $200,000. Denise has told her mom she wants to stay in the house even after Sally dies. So Sally decides, I’m just going to go ahead and give the house to Denise. Now, unfortunately, there are some unintended consequences of that decision. Sally has given away both the market value of the house and the cost basis of the house. So, if Denise changes her mind and decides that she wants to sell the house, she’s going to pay she will pay a pretty sizable capital gains tax. She’ll have about an $800,000 capital gain. She’ll be able to exclude $250,000 of that gain if it’s her primary home, but she’s going to end up paying a good bit in taxes. Alternatively, if if Sally had done a little bit of planning ahead of time and decided to make that gift of the house to Denise under her estate plan, Denise would get a step up in basis at Sally’s death. That step up in basis means that if Denise were to decide to sell the house down the road, then she’s going to be paying much less in capital gains taxes because the basis would be stepped up to the value of the house on the date that Sally died. Again, a little bit of planning goes a long way.

So, here’s some insider knowledge. One of our colleagues put these scenarios together for us to discuss and I am loving the name Match. She sounds like a queen. Anyhow, Queen M and her husband Bill want to maximize their annual gifting to their three children. So, $38,000 to each of them. 19 times two. But we’ve got some family issues here. Their youngest daughter is on the verge of a divorce. to be cautious. They don’t want to gift her the funds outright and risk losing them in the divorce. So, what can they do? For the older children, no worries. Just transfer the cash or liquid assets directly to them. Just because you treat one child one way does not mean you have to do the same thing for all of them. for their youngest though soon to be divorce. M and Bill should consider making this gift in trust.

One or both of them should create a trust now during their lifetime called an intervolves trust. You may have heard that term before. Just means during life. Create a trust for their daughter’s benefit. If this is an irrevocable trust, meaning that Bob and Mage cannot just go and change the trust terms willy-nilly, any assets that they put into this trust could be protected from their daughter’s impending divorce. Again, Bob and Match are creating this trust. They have full authority over picking the trust distribution terms of principal and income, who the trustee is now, and who the future trustees are.

Creating these trusts can get very complicated. So, I do want to reiterate that it is important to work with a qualified attorney, someone who specializes in this type of planning so that nothing goes astray or there aren’t any unexpected negative consequences. Trust me, if you are going to go down this path of lifetime gifting with trust, you want everything done well. And it’s really worth the cost to work with a professional. Again, I agree with you, Alaina. You want to invest that time to get professional help. Let’s move on and take a look at our fourth case study. So, here we’ve got Ted and Susan who have four grandchildren and they want to help pay for the college expenses for those grandchildren. They open up 529 plans for each grandchild and decide this year that they’re going to give $100,000 to each 529 plan. They anticipate then that in future years they’re going to make smaller gifts to those 529 plans. So, let’s talk about how they can maximize the special gift tax treatment for those 529 plans. The $100,000 they’re giving this year can be split equally between Ted and Susan. So, Ted will give 50,000, Susan will give 50,000. Then because of the special 529 plan rules we talked about earlier, the super funding, that 50,000 gift will be split over the next five years. So $10,000 a year. Next year to Ted and Susan can give $10,000 to the 520 I’m sorry, $9,000 my bad on that. $9,000 to the 529 plans and those amounts can increase as the annual exclusion amount increases in subsequent years. A change with the free application for federal student aid also says that grandparent owned 529 plans no longer impact financial aid calculations. So that’s good news. Last thing to be mindful of if you’re contributing to 529 plans is that if you’re super funding and die before the five years are up, a portion of those 529 plan contributions are going to be pulled back into your taxable estate for estate tax purposes. But any earnings in the 529 plan accounts will be outside of your taxable estate.

Patty, I know this happened a couple of years ago, but can you tell us about what happens with 529s being convertible into an IRA? Yeah, there are some special rules, Alaina, that do allow that. They are very complicated, so there probably don’t have enough time to get into that today, but that’s something else. And if attendees on today’s webinar have questions about that, feel free to reach out and we can schedule a follow-up call to get into more details there.

Last but not I’ve saved the stickiest situation for last. We’re going to go back to talking about Bob and Mary and their son Tom. But this time we’re going to talk about an unintended result. And that was Bob and Mary gave 50,000 to Tom to buy to make a down payment on his house but the house purchase fell through. And Tom didn’t tell his parents about it, about the house purchase falling through. Instead, he decided to use that money to buy a boat and to give some money to a charity he supports. I am confident that no one on this webinar today is surprised by the fact that Bob and Mary were not happy with this outcome. So, let’s talk about some ways that could have been avoided. I mentioned earlier the importance of communication, and it really goes back to overcommunicating. So, did Bob and Mary overcommunicate the fact that this gift was to be used just for the down payment on a house? Maybe, maybe not. Bob and Mary also could have shared with Tom the story of their first home purchase and why they view home ownership as a value they want to make sure that he can enjoy. So, they could have shared those stories with Tom. And now, you know, seeing how Tom used the money, that’s probably going to influence how Bob and Mary either make future gifts to Tom or don’t make future gifts to Tom. And we can’t let Tom off the hook in this outcome. You know, Tom could have told his parents the house purchase fell through. And he could have told them his plan to buy the boat and to give money to charity and ask what they thought before he proceeded. Alaina, what would you add to this conversation? So, I would just want to reiterate that this is a prime opportunity to instill some of Bob and Mary’s values in Tom. Values that hopefully Tom will carry with him when he receives the remainder of his inheritance one day. You know, instilling values is one of the greatest tools that we have to avoid the three generation wealth curse, which is an urban myth that says that families who build significant wealth often lose it by the third generation. So, how do we negate that curse? Instilling values, whatever those are to you and your family and your children and your grandchildren and so on. For Bob and Mary, you know, they may want to encourage Tom’s charitable gifting. That could be important to them, but they may have also preferred that he didn’t go out and immediately buy a boat. You know, whatever is important to Bob and Mary, like Patty said, overcommunicate not just what’s important, but those values. Is there any way that Bob and Mary could have definitely is there anything they could have definitely done to ensure this money was used for a home purchase? But yes, that’s where our old friend the trust comes in. So, if Bob and Mary had put this money into a trust, instead of giving it to Tom outright, they could have written down in the trust terms that the assets were only to be used for a home purchase. The trust may be more administratively burdensome and expensive to establish, but it guarantees their goals and that could be worth it to them.

Alaina, that absolutely could be worth it to them. And I’ll say, you know, that idea of losing generational wealth by the third generation, I’ve also heard referred to as shirt sleeves to shirt sleeves in three generations. Oh, that’s a good one. Yeah, I like that. Yeah. Before we start taking some questions, I want to remind everyone there’s a link in the chat that you can use to schedule a 15minute phone call. No cost to have that phone call, and one of our team members would be delighted to talk with you and help. All right, Alaina. I’m going to take a look and see what questions we’ve got and it looks like I I’ll take this first one. And the question is, “How can I give to family members without creating financial dependency?” Well, Alaina, I’m glad we’re starting with an easy question. Haha. Yeah, I’ll throw out some ideas here for what can be done. So, one thing you could do, and you’ve really heard it in some of the examples we’ve given earlier, is to make that gift for a specific purpose. To make the gift for the down payment on the house or to help with education expenses, some other big purpose, so that the money doesn’t just show up in their monthly budget that can be used however they want. You might also think about making smaller annual gifts instead of a large one-time gift. Sometimes when people get a large one-time gift, their really good financial habits may be disrupted and you probably don’t want to disrupt those good savings and investing habits that they have. And then Alaina’s talked a couple of times about our good friend, the trust. So that could be another tool that you could use. You could create a trust and then the terms of the trust would dictate how and when money would be used. You know, I was talking to one of my co-workers in Atlanta a couple weeks ago because obviously we’re about to experience the great wealth transfer. What is it? Some $70 trillion are going to be passed to the next generation in the next 20 years. And with these trust funds and with these significant inheritances, one of the things that, you know, I would love to see as a parent, you know, what I would want for my kids is for them to have the financial freedom to do to have any sort of career that it doesn’t depend, you know, what their income is. you know that they could go and be a teacher or an anthropologist like I wanted to be. You know, somewhere where you know you’re going to have an impact on society and you don’t need to worry about your income because you know that it’s there and you know it’s protecting you. So, that was just a conversation that went around our office. What would you do with your trust fund and what would you want for your kids? That’s a fun topic. Yeah, it’s good. It’s hopeful. you know. So, one more question. I have a grandchild with autism who will need ongoing financial support. What’s the best way to handle a gift in this situation? So that is a very tricky question because you know whether that grandchild has autism or down syndrome or any other sort of health issue where it’s unlikely that they’ll ever have enough financial acumen or even be working. You know it depends on that scenario to manage any sort of inheritance. But you want to make sure that those funds are available for their use. And the best way to handle a gift in that situation, either during life or at death, is going to be in something called a special needs trust. And special needs, you know, it just implies that there is something going on above and beyond a regular trust. And typically with those special needs trusts, what you’re trying to do is to avoid that beneficiary losing any sort of government benefit that they may be receiving. You know, you want to make sure that that gift to them does not interfere with their government benefits because government benefits can be very significant. And so if your beneficiary, you know, if they have autism, but it’s not impacting their life, they don’t qualify for government benefits. That’s going to depend. You can still give those gifts outright. Alternatively, you can still create a trust for their benefit. I would say any time that you have a beneficiary with special needs, again, you work with a very qualified attorney. Is there anything you would add with that, Patty? No, Alaina, I think you covered that well. Thank you. That that’s a really important topic for families facing that kind of diagnosis. For sure. It’s really hard. So, our time is up for today. Thank you all so much for joining us. If you’re looking for more information about Savant and the services that we offer, please go to our website www.savantwealth.com to learn more. And you’re also welcome to schedule that complimentary phone call. We hope that you all have a great rest of your day. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guidebooks, checklists, and other useful financial resources.