Way to set up new account to max out annual gifts

[Anonymous]

Our oldest is about to graduate from college. I have an idea we should set up an account and start doing the maximum gift per year (for future grad school, down payment for a house, etc).

But I don’t really want them to know we are doing it at first (I want them to be super responsible with their budgeting and not think they don’t have to save themselves because the gift limit isn’t large so it won’t be a life changing amount - I think it’s something like 20k a year which is big for a 22 year old.

Does the account have to be in their name only? Can it be joint? I don’t worry about getting their signature to set up an account, but it seems it would be easier if it’s a joint account.

Any other advice?

[Anonymous]

Honestly I think it would be better to give it to them but have a conversation about how it is long term savings for a down payment or grad school or whatever. Getting them gradually used to the idea/in practice seems better than a lump sum amount a few years, and your college graduate should be old enough to understand it (I know of teens who get more than the gift amount via a crummey trust and they get the message not to spend the money).

Plus your joint account plan won’t work because in that case the gift occurs when the kid withdraws from the account not when you deposit to the account.

[Anonymous]

I don't see the point other than your need to be involved in their life more than you should.
Nobody should be buying a home any time soon. The money should be invested, not saved.
They can figure adulating out without you. You can always help pay mortgage and tuition.
Zero reason for extra account for this.

[Anonymous]

If you maintain control, the gift is not completed. You have to give up control for this to work.

[Anonymous]

I would open a brokerage account and invest it. If you gift it to them, it’s their money to do with as they wish. Please don’t try to put strings on your gift.

[Anonymous]

it's a gift to them - it needs to be in their name. We give the max each year to our young adult children (youngest is college age) and tell them it's for investing. It's worked out fine so far. They all have their money in zero cost index funds.

[Anonymous]

we set one up for each of our kids many years ago - as a joint account but kids as primary owners and me as secondary. each has about 320k right now. they all have good jobs. we have it with vanguard

[Anonymous]

I struggle with this idea. My kids are teens, so I haven't really put too much thought into this yet, but I worry that I would spoil them in adulthood by gifting them all this money. In one hand I would say if its a gift, then you give them a check and take the risk they blow it or it demotivates them in their career. I think my approach would be a matching system. They have a goal such as save for a house, pay down a debt, or build a nest egg, and I match up to the gift amount each year. That way there is incentive for them to make the best use of it.

[Anonymous]

Anonymous wrote:we set one up for each of our kids many years ago - as a joint account but kids as primary owners and me as secondary. each has about 320k right now. they all have good jobs. we have it with vanguard

This has the potential to raise gift tax issues of you care about that

[Anonymous]

Money with attached strings is toxic. Either gift it to them or not.

[Anonymous]

You could pay an estate attorney to set up a trust. You could make yourself the trustee with your child as the successor trustee once you die or your child reaches a certain age.

[Anonymous]

Anonymous wrote:Our oldest is about to graduate from college. I have an idea we should set up an account and start doing the maximum gift per year (for future grad school, down payment for a house, etc).

But I don’t really want them to know we are doing it at first (I want them to be super responsible with their budgeting and not think they don’t have to save themselves because the gift limit isn’t large so it won’t be a life changing amount - I think it’s something like 20k a year which is big for a 22 year old.

Does the account have to be in their name only? Can it be joint? I don’t worry about getting their signature to set up an account, but it seems it would be easier if it’s a joint account.

Any other advice?

We just set up accounts for the kids and gifted starting from when they were in early HS. They didn't even know about their accounts since we do their taxes. When they become "acceptably responsible", we will let them know about the account, its purpose, and how to manage it. Kid 1 has just started working, and I clued him in on how to track assets/net worth. He's now aware of his account, although he does not yet have access. In a couple of years, he'll be ready. Hope all the kids follow the same path of maturity.

[Anonymous]

Thanks, all. This is OP. This was very useful. We will set it up in kid’s name only and tell of its existence but talk about benefits of not touching it and letting it grow until it’s needed for something bigger. That was useful information about how a joint account could run into tax issues so we won’t do it that way.

[Anonymous]

Anonymous wrote:Thanks, all. This is OP. This was very useful. We will set it up in kid’s name only and tell of its existence but talk about benefits of not touching it and letting it grow until it’s needed for something bigger. That was useful information about how a joint account could run into tax issues so we won’t do it that way.

What tax issues. Are you planning to give millions??

[Anonymous]

Anonymous wrote:Thanks, all. This is OP. This was very useful. We will set it up in kid’s name only and tell of its existence but talk about benefits of not touching it and letting it grow until it’s needed for something bigger. That was useful information about how a joint account could run into tax issues so we won’t do it that way.

OP, what’s the size of your estate? There’s a lot of confusion out there about the annual gift tax exemption. Going over it doesn’t mean you owe any taxes. It just means you fill out one form and the overage counts towards your lifetime exemption of $15m for each spouse.

So if your joint assets are likely to stay under $30m, don’t sweat it, you can just give them the whole down payment when the time comes and fill out the one form and not owe any taxes ever anyway. They don’t pay taxes on it no matter the amount.

I have a personal philosophy having watched this play out across my extended family that you should not give gifts to adult children with strings. Because it won’t work anyway and it will damage your relationship and cause problems in their marriage too. Either don’t give them anything, which is valid, or give them gifts without strings and let them f$& up if they’re going to.

The middle ground would be a trust with a generous HEMS clause, but frankly I think you shouldn’t do that unless you need it for taxes.

If your child is so nonfunctional that you need to buy them a house without giving them a gift and letting them decide that’s what they should do (even if you say that’s your suggestion), buy the house and let them stay there as a tenant.