By Quentin Fottrell

“It would make us very happy to see them use this gift to spend a wonderful vacation or pay extras during their studies”

Dear Quentin,

My husband and I were told that we had accumulated a large enough nest egg that we would not outlive our money. We had always intended to recognize our nieces and nephews in our wills with a modest donation ($10,000 or less). However, we hope to have many years ahead of us. Most of our nieces and nephews are just starting college or starting a family.

It seems that it would be much more useful for them to receive a gift now. It would give us great joy to see them using this gift for a wonderful vacation or paying extras while studying. It should be easy, but it quickly turned out to be anything but.

First, two of our nieces are underage. We didn’t want to give them presents now, because we didn’t want to trigger a tax for children. Second, we also didn’t want them to feel upset when they saw their older siblings receiving gifts. Third, we learned that nieces and nephews in college were still considered dependents and gifts to them could also trigger child tax.

A niece has a hardship scholarship: if we gave her $10,000, her college would subtract that gift from her financial aid. Do we give $10,000 to our nephew and another $10,000 to his new wife? This could allow us to give an extra gift to the remaining clan when they get married. Would giving a gift to our nephew – but not his fiancée – make him feel like he’s not really part of the family?

Finally, two of our siblings’ children have substance use disorders. Experience has already shown us that giving them gifts can fuel poor financial choices (for example, buying more drugs and possibly triggering an overdose). For them, we thought it would be good to take up plan “A” and recognize them in our will. However, again, we don’t want there to be any hard feelings if some cousins ​​get gifts and they don’t.

We could really use comments on this.

puzzled aunt

Dear Lost,

You are right not to give your nieces and nephews $10,000 indiscriminately just to ensure fairness.

If you have good reason to believe that some nephews and nieces have persistent substance abuse issues and would spend the money irresponsibly, i.e. on drugs and alcohol, you shouldn’t feel obligated to do so. TO DO. Every circumstance is different. You would be a de facto facilitator, as opposed to an assistant. No one would win.

You could, however, put money in trust for these loved ones and/or consult with their parents on how best to use the money: perhaps they could benefit from help with a down payment on an apartment and/or night classes, or even a Roth IRA or 529 plan. And, yes, a donation could impact your niece’s financial aid. You could wait until she graduates.

It is a good idea to consult your gifts before giving them money. But it can be done delicately. You don’t have to discuss a $10,000 gift with Parents B, C, and D if you offer money to Parent A. Don’t turn your goodwill into drama by making public gifts and discussing your largesse with other family members. The smartest gifts are given discreetly.

You can give $16,000 a year to each of your nieces and nephews without affecting your annual $12.06 million estate tax exemption. In fact, you and your husband can collectively give $32,000 to a family member without filing a tax return. Most states do not have gift taxes, although some have clawback rules if the donor dies shortly after distributing the money.

The “kiddie tax” relates to unearned income rather than gifts. If the taxable interest, dividends, capital gains, royalties, scholarships and other unearned income of your nieces or nephews exceeds $2,300 in a given year, your donations may be subject to this tax. It is designed to prevent parents and other family members from shifting their income to a lower tax bracket. Learn more here.

“A gift to a minor is considered current interest and qualifies for the $16,000 exclusion if all of the following conditions are met: the property and its income can be spent by or for the benefit of the minor before he turns 21,” according to the Raleigh, North Carolina-based law firm Hughes, Pittman & Gupton.

In addition, “all remaining assets and their income must be transferred to the minor on his 21st birthday”, indicates the law firm. On a more gruesome note: “If the minor dies before the age of 21, the property and its income are due either to the minor’s estate or to whomever the minor may appoint under a general power of appointment “, adds the cabinet.

Deal first and foremost with your nieces and nephews and be careful not to set a precedent by giving significant gifts to their spouses.

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-Quentin Fottrell


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10-20-22 1424ET

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