Some people want to know how much is enough . Other people want to learn how much is too much .
financialplanning
BY JUSTIN MILLER , J . D ., CFP ®
Gifting and Letting Go Emotional
and Practical Perspectives making significant gifts to loved ones is arguably one of the most fraught wealth management decisions . Emotionally , we need to balance the joy of giving during our lifetimes with a potential loss of control and the prospect of unintended consequences . Practically , we need to weigh how much we can afford to give with the realization that every dollar not transferred could be subject to a 40 percent federal estate tax ( or more , if rates return to previous levels ), as well as potential state estate taxes .
Can I Give ? Will I Have Enough ? The last thing anyone wants is to have to borrow from their kids or grandkids later in life because they gave too much . Whether a family has $ 10 million or $ 100 million , a long-term cash-flow analysis — also called a lifestyle analysis — is a necessity . No one wants to be forced into significant drawdowns at the wrong time , which means that inflation and market volatility must be considered .
In addition , studies show that wealthier people tend to live longer than average , which could bring unexpected and uninsurable medical expenses down the road . ( Glei DA , Lee C , Weinstein M , “ Assessment of Mortality Disparities by Wealth Relative to Other Measures of Socioeconomic Status Among US Adults ,” JAMA Network Open , April 8 , 2022 ; Finegood ED , Briley DA , Turiano NA , et al ., “ Association of Wealth with Longevity in US Adults at Midlife ,” JAMA Health Forum , July 23 , 2021 ).
Sometimes , even those with more wealth than they could spend in multiple lifetimes might be afraid to give . In that case , addressing any anxiety from a psychological and emotional perspective , as well as from a practical one , is key .
How Much Should I Give ? Some people want to know how much is enough . Other people want to learn how much is too much . Warren Buffett once said in a 1986 Fortune magazine article that the perfect amount to give children is “ enough money so that they would feel they could do anything , but not so much that they could do nothing .” In other words , there is no magic number .
Instead , the answer is to give loved ones no more than they are prepared for . An unprepared individual could receive a few hundred thousand dollars , and it could ruin their life — they might drop out of school , abuse drugs and alcohol , or develop a gambling addiction . On the other hand , a prepared person could be gifted millions of dollars and still turn out well — continue to study hard , build a career , raise a family and become a pillar of the community .
Some people want to know how much is enough . Other people want to learn how much is too much .
The key is to focus on preparing the family for the money . A team of good accountants , attorneys and wealth managers can help implement a successful long-term plan to invest the family ’ s assets and transfer the funds over multiple generations in a tax-efficient manner . The team also should work on preparing future generations for that financial wealth . This could involve financial education , communication and values exercises , and a focus on healthy family governance .
When Should I Give ? From a gift , estate and generationskipping transfer ( GST ) tax perspective , giving sooner rather than later could provide substantial tax benefits . Not only can a married couple transfer up to $ 27.22 million completely free of taxes in 2024 , but all the future growth of those assets could be free of any future gift , estate and GST taxes . Moreover , the $ 27.22 million lifetime exemption amount per couple is set to be cut roughly in half after 2025 , so families only have a relatively limited time to take advantage of the substantial potential tax savings from the larger useit-or-lose-it exemption amount .
On the emotional front , not only do we want to see loved ones enjoy gifts while we are still alive , but studies have shown that giving to others can boost the giver ’ s happiness and satisfaction , increase life expectancy , reduce stress and ease depression . ( Dunn EW , Aknin LB , Norton MI , “ Spending Money on Others
12 CALIFORNIA CPA MARCH / APRIL 2024 www . calcpa . org