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Personal Finance (Not Investing) • Investment math on when parent could consider giving money to adult kids.

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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.

Statistics: Posted by hvaclorax — Sun Oct 06, 2024 10:10 pm — Replies 72 — Views 6181



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