- Ken, a semi-retired executive, helped pay for his daughter and her husband’s college tuition and the cost of a house.
- He wants to gift them an annual tax-free deduction once they get their spending in check.
- Some Baby Boomers are actively transferring wealth to their adult children at a time when they need it most.
Ken, a semi-retired health-care executive, helped pay for his daughter and her husband’s college tuition and the cost of a house.
He would like to transfer more of his wealth to his children through annual cash gifts, but not until he is confident that their spending is properly managed.
“I’m scared to do that now because I don’t want to be part of the sinkhole,” Ken, a man in his early 60s who lives in the Southeast, told Business Insider, who asked that only his first name be used to protect his privacy.
Ken is among a generation of baby boomers who have begun to proactively transfer assets to their adult children, rather than waiting to pass them on through inheritances. Financial planners previously told BI that for parents who can afford to pass on assets, it may be a good idea, as the money may be more useful when adult children are in their 30s and 40s and starting their own families. But one financial planner said baby boomers should “stress test” their fortunes with their advisors before making plans to pass them on.
Ken said his daughter graduated from college debt-free, thanks to academic scholarships and a 529 savings plan he contributed to that allowed him to withdraw money tax-free for education expenses. By the time his daughter started college, he had about $75,000 in the plan. When she graduated, he gifted her the money he had left over and paid the taxes on it.
A month after graduating from college, Ken’s daughter married someone from a different financial background: Her husband paid for his own education and graduated with $45,000 in debt. Ken says some of the personal loans his son-in-law took out had interest rates of up to 9%.
“Unfortunately, he didn’t get much guidance from his parents,” Ken said.
Growing up in debt wasn’t what Ken envisioned for his daughter, so after paying for the wedding, he decided to help her pay off some of her debt. He paid off the high-interest debt in full, and she even put some money into a 529 plan. But the debt was still there.
Both men got jobs straight out of college and were able to save up some money.When they wanted to buy a house, Ken and his wife discussed their financial commitments and agreed to come up with $20,000 for a down payment.
“In that case, it had a purpose,” Ken said, noting that it was an asset. “To me, it was a no-brainer.”
Ken wants to give them money, but wants to make sure they save it.
But Ken said he started spending heavily on furniture and redecorating the house. When his daughter’s husband was laid off, Ken thought it might be a wake-up call, but he was able to find a new job relatively quickly.
“As a guy with a 30-year career, I’ve been laid off, I’ve been downsized, I’ve been through all of that with my family, and if you don’t have any savings, you’re basically in trouble,” he said. “They just didn’t understand the severity of it, and I’m worried that’s what happened there.”
Ken said it may be partly his fault, having always protected his daughter during periods of unemployment and financial hardship.
He said the message he is trying to impress upon them now is “It’s OK to spend money, but you have to have money saved up for a rainy day. That’s an old way of thinking. It’s a baby boomer way of thinking, but that’s what you have to do.”
Ken said he wants to start giving away the annual amount allowed tax-free, which is $18,000 for individuals and $36,000 for couples in 2024.
“I’d like to give gifts more often, but I just want to make sure it’s not just used for other things,” he said.
He hasn’t yet told his daughters he’s considering gifting them the money, but he wants to see evidence that they will spend it responsibly in the coming months and years.
When asked why he has only started giving them money now, Ken said it’s because he is blessed enough financially to be able to pay it.
“They don’t have to wait until I die to get their money. What’s the point? For me, I just leave it there,” he said.
“My daughter is my only daughter so I care about her more than anything. I don’t want her to suffer. So this is also my responsibility,” he said, adding, “I don’t want to make their life too easy but at the same time, I want to make sure I share.”
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