The first step in planning to make a large gift for your children is to consider your motivations for doing so. Are you trying to minimize your exposure to taxes, including estate taxes? Do you want to provide for your child’s education? Are you going to buy your newlywed child’s first house? Do you want to ensure that your special needs child is taken care of for his or her life? Often you will have more than one reason to make a large gift to your children. In that case, you should prioritize your motivations for gift giving because they may conflict with one another.
You should also note that decreasing your overall tax rate often has the effect of making your estate plan more complex, and you should decide whether the benefit is worth it. Some cases will be easy, but others will not. An experienced Cleveland estate planning attorney can help you weigh the costs and benefits of various tax-avoidance techniques if that is one of your primary motivations.
In planning to make large gifts for your children, you should also consider how much control you want them to have over the assets you gift. If your child is relatively young or immature, you may have reason to believe they cannot manage your gift appropriately—you need to protect your child from himself or herself. In that case, a trust may be the most appropriate arrangement.
Conversely, your child may be an adult with children of his or her own who manages a successful business and embodies the ideal of fiscal responsibility. In this case, you should probably feel comfortable making your gift directly to your child—at least as long as you are not concerned with the tax consequences of such a transaction.
You may have one child who is irresponsible and one child is responsible. You can opt to choose each of them differently, knowing that it might cause friction in the family, or you can opt to treat them the same, knowing that doing so will require the responsible child to sacrifice control for equity.
After you have decided on your motivations and your concerns for your children’s abilities to manage the gift responsibly, you should consult with an Ohio estate planning attorney, particularly if decreasing your exposure to tax liability is a major concern. Gift giving to children can become very complex, very quickly, and the prudence of various gifting techniques can be evaluated only a case-by-case basis.
For example, your gift may require a guardianship or conservatorship if your child is under 18; you may decide to use a Crummey trust to reduce your tax burden or a 529 plan to save for your child’s education; you may want to avoid gift taxes when you transfer a house to your son or daughter; your gift may implicate the so-called “kiddie tax,” which means that your child may end up paying taxes on the income produced by your gift at your highest marginal rate.
How We Help
Regardless of your situation, the Cleveland estate planning attorney Bart Leonardi is here to help. Mr. Leonardi is well-versed in gift-giving techniques, and he can tailor a gifting scheme to your particular situation and goals.