SPEAKER_02: 0:25

Welcome back to the Make the Most of Your Money podcast. You got Taylor and Colin as always. Colin, how are you? I'm good, Taylor. How are you? I'm good. Today we want to talk about giving money to kids. It's a question we both get quite a bit. And it's kind of, I think it'll be a good conversation because we sit on both sides of that with the clients we work with. I think you deal a lot with clients wondering how to give to kids, and I work with a lot of kids wondering how to plan for receiving gifts. And um when it comes to giving, you know, there there's technical aspects of how much should I give, when should I give, what account should I give to, and those are important. And a lot, there's some tax stuff you want to be aware of and try to be as efficient as possible. There's also a lot of behavioral, psychological, spiritual even aspects to giving of just which we're going to talk about. So um I think you you brought up a good point before when we were talking that just let's just acknowledge off the top that it's a incredible blessing to be able to give to kids. If you're in a situation that there's a surplus that you can give, I mean, that's just that's fantastic. Um the topic of gifting is really tricky because there's obviously I think every parent has this desire that they want to help kids. They're their children, they'll do anything for them. Um but there's this balance of spoiling a kid. You deal with that in all sorts of ways. Just you want to give, you care a bunch, but how do you not spoil them? So let's let's talk about that balance for just start. Do you have any thoughts off the top on that?

SPEAKER_00: 2:01

Yeah, I mean the the you deal with it as a parent, you deal with it at every age, um whether not wanting to spoil the the three-year-old who wants an extra cookie, um you know, all the way to to adult children or once your grandchildren. And so it's how to um balance those concerns is is is huge. Um I mean, I think the the quote that comes to mind, and I'll I'll I'll don't it's not an exact quote, but but I think Warren Buffett said something like, you know, I want to give my kids enough that they can do anything, but not so much that they can do nothing. Um and that that that resonates. Like I want my kids to have every opportunity, you know, whether that's to to better themselves, education, um, enrichment, you know, uh entertainment. All all you know, I want I want those things for them. I want them to to to be able to grow up to be, you know, to to have opportunities and and do something they're passionate about. Um but I don't want to give them so much that, you know, they can sit on the couch all day or or that they don't develop like that internal motivation to you know go out and and live life for their own reasons. Um or or you know, you want you want that motivation to be intrinsic rather than extrinsic. Um so yeah, I mean it's a this is a a fertile area to talk about. I mean, a lot of families do it well, a lot of probably a lot more do it poorly, and and it's it's messy.

SPEAKER_02: 3:47

Yeah, and I think it's like it's important to say there's not necessarily a right answer to this. It's so dependent on the family, the kid, the parents, like what's the con like how is the gift being given? Is it, you know, a joyful gift? Is it I'll give you this gift if you could for some parents it can be a way to kind of extend control to an adult children, kind of, you know, I'll use it. Absolutely. If you want to get your gift, you gotta do this this year and you know, be good or your inheritance will change. I mean, I don't know how many people actually do that, but like there's there's so much there. Um yeah, I I the Warren Buffett quote's incredible. I think that's just that's the ideal. You know, that you you want to enable the kid to be able to do anything, but not do nothing. That that's so perfect. And I I think about with gifts like across the age spectrum, back to the cookie example. Like, how do you still make sure the lesson that they need to learn is learned? You know, like because you you you know, you still want kids to know how to work hard, to aspire for something, to struggle. Struggle is good. I think that's you know, that's that's I don't want to get too off topic, but like struggling is good. Um, so how do you make sure that lesson is still learned? But also not ignore if you have the means to be able to give to make it a little easier, still be able to provide that. And um I don't think necessarily this is the best time to bring it up, but one tactic that's always stuck in mind with me was a friend of mine growing up, very, very fortunate. Um the dad could have bought any car under the sun, but he matched what the sun raised for his first car when he was 16. And I was like, that example's always stuck with me as like fantastic, you know, like the kids still learned how to work and save and earn the car, and then dad matched it. I think that's fantastic. And I think that's a really good example of finding that balance of you still learn the lesson, but I'm still gonna be able to give a gift there.

SPEAKER_00: 5:34

So um Yeah, I think about that in the concept of like summer jobs. Like I want my boys when they get older to have a job over the summer, not because like we couldn't give them some pocket money, but because I want them to learn, you know, the the about hard work and the satisfaction that comes from earning a paycheck and you know, have to deal with all those, you know, relationships, whether it's with a customer, whether it's with a boss. Um, like there's so many valuable experiences that come from from just that, from like experiencing them, not from having been gifted uh uh a way to avoid them. So yeah, I think uh, you know, but I just overarching all of this is like um that what what how will this gift impact the the recipient? And are you are you attaching strings to this or how is it um you know how how will it be received? And you can't always know that, but um but yeah, I think um that that buffet quote's a good one. You know, I want I want them to to learn what hard work is and and learn to um you know figure out their own path in life too.

SPEAKER_02: 6:53

Yeah. I I think we should also mention you there we talk about a term called the great wealth transfer, which we advisors use all the time. It's this idea that the baby boomers have had this incredible there's a ton of wealth that's going to get passed down in the next 10, 20 years. And a lot of times if people think of gifts, they think of like by choice. But if you think about a state, passing on your estate, that's just because you die. But like there's going to be a lot of if you could if you view passing on an estate, basically your money when you die as a gift, there's gonna be a ton of gifts being given, whether you want to or not. And so even posthumously, you're going to be probably there's gonna be a lot of gifts going on. And so this can apply, even if you're not necessarily thinking about giving while you're alive, you're going to be giving a lot of there's a lot of people who will be giving a lot of money. And thinking this through and thinking through the behavioral side, the spiritual side, and then some of the technical stuff we'll talk about is super, super important. Um, because it's, it's, it's just become it's just a super real thing. There's a lot of people that may not even want to give who are just gonna die with a lot more money left than maybe they ever thought they would. And then you enter there's the there's the a super popular book. The concept was die with zero. And the idea was try to give away all your money while you're alive instead of dead. And one of the arguments is, you know, isn't it better to see the joys of that while you're living? There's some incredible mathematical and technical challenges behind actually doing that. Um Yeah, I just wanted to bring that up again. That just this is a very wide, this is going to apply to a ton of people, probably whether you want to or not. So thinking this through is, I think, really important.

SPEAKER_00: 8:32

Yeah, I think that's a good point. There there may be there are many more people who will be gifting as part of their estate that maybe can't afford to gift now because they don't know about you know long-term care needs or or longevity or you know, that you you do have to you have to protect yourself first, obviously. Um but but in most cases, like there will be something left for the kids. And so um being somewhat proactive about those discussions and and and just in general, like openness as you know, your kids are adults now and and having those kinds of discussions with them about what your own finances are, your own situation, because they may need to know it at some point when they're you know helping you to manage it, you know, just just this it's all kind of wrapped up in this conversation about intergenerational gifting.

SPEAKER_02: 9:27

And that's that's something really interesting is do you talk about it or not? Um because I I deal with it with a lot of people typically receiving gifts. Like should it be planned for or not? An inheritance or a gift of some kind. Like I think most people, the default would be like, you know, I'm not gonna expect it or plan for it, I'll be grateful if it happens. But there's also a point where like if it's a fact and it's coming, why would you not plan for it? Like if you know you're gonna get a bonus at work in five years, you'd plan for it. Right? So why would we why do we treat gifts differently? And um I I I think if, you know, of course there's no certainty, but there are time there are conditions where you can know that you're going to be receiving some amount of money. I think that is something that should be acknowledged in a financial plan. Um and and planned for. Do you agree or disagree?

SPEAKER_00: 10:30

Um I mean, speaking for myself and what I'd advise clients and and what most clients generally want to do when they're planning, um, is is to not include any specifics around the timing or amount of a gift. Like let's just not count on it. Let's plan as if that's not happening. Um because you don't know, you know, the um that the your your parents may need that money, or um you know, it it may it may be that you don't get it, uh, or don't get it when you think you're gonna get it. Or, you know, so I I just I think from a planning standpoint, I'd I'd always recommend like let's just plan without it, um, and it'll be nice if and when it does happen. Um just because otherwise it just it also feels it feels weird to like you know, when when when are my parents gonna kick kick the bucket so I can get this you know get my retirement plan back on track? You know, it's it's that feels that feels wrong.

SPEAKER_02: 11:44

But it's ignoring reality to totally ignore it too though.

SPEAKER_00: 11:50

Yeah, yeah, that's true. Um yeah, and and then there works there are certainly situations where clients have made different decisions because they know that there's a backstop there. Yeah. Um and that's all I mean, that's always been true through throughout entire life. I mean, you see that with young kids or or kids that like college, they get in trouble or or whatever. You know, they know that mom and dad has their back, or they could afford to take a risk on uh on starting a company because they know if this fails, like I'm not gonna be starving.

SPEAKER_02: 12:22

Let me give you some concrete examples. Yeah, I'll keep it anonymous. Um a client knows with extreme certainty that there will be a very sizable gift at the and their parents are old, these clients are in their 30s, so you know, it'll happen before they retire. Um, unless again, a spoke of world records is going to be set for longevity on the parents. Um We were talking about life insurance. And at first they didn't want to get life insurance because our parents will help us. And I'll be honest, I was like, I don't love that answer. And this is what I said. I said, would your parents agree with that statement? Would you tell your parents, I'm not buying life insurance because you're gonna pay for it? I said, Oh, no, not at all. We're gonna get life insurance. That's a great way to frame it. It yeah, it was just like, and if because if the parents like, absolutely, that's by that's our arrangement. Of course we would step in and help. Don't pay money for life insurance. Okay. Okay. Like, who am I to tell you, no, the parents shouldn't help out? But when we phrase it that way, like, oh yeah, no, definitely not. Um so that was one example where they they ended up getting the life insurance. And we did a term policy because you don't, you know, it's not a permanent need there. There will not be a permanent need for life insurance in this case. Um then we're looking at savings. They're already saving a tremendous amount. They're doing very well. Uh keep it percent, they're probably saving 17%, and they needed to be at about 20% to fully fund their retirement savings as if they were dependent. Yeah. Yeah. Yeah. And there was a decision, something they wanted to do that was going to cost that 3%. And this is where I said, okay, you could forego this thing and save for your retirement. Or you know what, guys, you're doing a great job. You're saving a lot. There's a very large gift coming. Go ahead and live your life. That's an example of planning for the gift. They're not just blowing money, saving nothing, doing nothing, but like I think that's a really good example of balancing how do you plan for or not a gift. Like, let's not be, if you're gonna get just pulling numbers, like you know you're gonna see five million dollars in the next 15 to 20 years, and you're gonna not do something for$10,000 today. We're not gonna take that family vacation when the kids are young because they got to save for retirement when you know there's, I think that's where that's kind of silly to just ignore it blindly. And I I think it's okay to know, okay, like we're not fully, fully funding retirement because we know there's this big amount. I think that's perfectly fine. I think what's not perfectly fine is I'm not gonna save for anything, I'm gonna do everything because mom and dad are gonna give me a bunch of money when I die. I think that's most people would agree, like that's too far the other way. So I just think maybe that example helps what I'm saying.

SPEAKER_00: 15:02

Yeah, I I I totally agree with that. And those are the kinds of like gray area or or where there's room to personalize that plan. Um Yeah, I mean, I think from the uh from the from the other side, like one of the reasons I personally don't want to count on it is because I want like independence. I want to know that like there that's you know, obviously we all desire control, we all want independence, but I don't want to have like strings that are real or imagined placed on on what we choose to do. And so I want to be able to, you know, like if one of us became disabled, probably our parents would help help us out in that situation. But you know, whether whether but I would also like to be able to to say that like, you know what, we can still cover it. We've still got we've got some disability insurance that will enable us to be, you know, more independent than if we were totally relying on on family. So, you know, it's a it's a there's like you said at the outset, like there's not a right answer here. I think both um both approaches, we don't want to totally ignore reality or uh but we also want to, you know, understand how those family dynamics and um be s be cognizant of of how those can affect your your plans.

SPEAKER_02: 16:37

Let's talk about how to give now, like how to actually give money. And I before we get into some of the technical stuff, I it just came to mind like there's a lot of ways to give without sending a check. And it could be, I mean, something I've seen a lot is grandma and grandpa pay for a big vacation for the whole family. You know, like kind of the c experience is like that was a ten thousand dollar vacation, but they pay, you know, it wasn't a check to them to do something. So um that's one I don't know, that just came to mind of uh before we get too into it. I want to make sure I said that. Yeah, I love that.

SPEAKER_00: 17:10

And I've I've had I've had some clients do use their money that way. Um, they're they're they're they want to do something that the kids wouldn't otherwise do for themselves. You know, they could just write a check, but but like those kinds of experiences, those memories, the trips with grandkids.

SPEAKER_02: 17:28

Um I think everybody wins. Totally. The gift giver gets to experience it with them, the gift receiver gets to experience that trip and that time with them. Like I I think I love that idea. And I think it's been really cool to see some of like kind of blow it out, stuff they never would have done when the kids were going. We're gonna rent that place, we're gonna go to that place and do that. I think that's that's really, really cool.

SPEAKER_00: 17:52

But um, yeah, and being on the other side of that, like yeah, as the the receipt the the recipient in in of of those kinds of gifts. Um yeah, like the just at our time in life with young kids and things, like that's just not even something we can consider financially or you know, whatever. And so it it truly is a gift when when you're you're able to go on an experience like that a once-in-a-lifetime thing. So yeah, I think that's kind of the true nature of gift. Like there are no strings attached here. Yeah. That's a that's a true gift.

SPEAKER_02: 18:26

If there's strings, it's a transaction. Yeah, for sure. Um, when it comes to actually giving money, I think at least something that comes up a lot when I talk to people is like, how much can I give for tax purposes? Because there's uh if you may or may not know, there's a like a if you give over a certain amount, then you have to report it to the IRS as a taxable gift. And that can be a that's a very misunderstood phrase, what I just said. Um in 2026, what we said the limit's like$19,000 you can give somebody uh without kind of off the record, nobody needs to know. Um right, and and we could like that's if you're married, each couple can give that to one person. So like mom and dad can give me$38,000 this year. Um, but what I wanted to point out is like, let's talk about that gift tax, that that limit. Um if you go over that gift, all it does is, well, okay, when you pass away, you pass on an estate, and there's a certain amount that you can basically deduct before you would ever have to pay an estate tax. Um you don't just have to wait until you die to do that. If you if let's say that you gave somebody$50,000, that's$31,000 over that$19,000 limit. That$31,000, nobody's paying income tax on that this year. It just would be counted as a taxable gift that then when you die would reduce that deduction at the end of your life until you would have to pay a tax on your estate. That's not all, that's not completely technically the right terms all the way throughout, but functionally that's what happens. So like I think that 19,000 thing that changes every year. One, I think it can be kind of a nice upper bound for people giving gifts. Oh, I can't give more than that. You know, there's the the taxable limit's 19,000, but it's it's not like a super real limit for a lot of people.

SPEAKER_00: 20:21

Yeah. Um Yeah, I think that's important because it's interesting. We started the conversation talking about like gifting during life, and and you may not be able to gift during life, but but odds are you will have an estate that that is passed on. And it's interesting that even like in the tax code, the gifts and the lifetime gift exemption and the lifetime and the estate tax exemption are the same amount, and they're counted together. And so, like you said, when you gift above the annual exclusion, that$19,000, all that happens is you have to submit a form to the IRS that said, I gave this much over the annual limit, and that's counted against your lifetime exemption. And that lifetime exemption exemption applies to gifts and it applies to a state. And so right now, you know, after the the the big beautiful bill, um that lifetime exemption is fifteen million dollars. And so there's a very small number of households that are approaching that because it's$15 million per person. It's is for if if you're married, you know,$15 million per$1.

SPEAKER_02: 21:37

What we're saying is kids, if your parents tell you they can't give you more than the$19,000, ask them, are you gonna pass on more than$15 or$30 million? And if they say no, then call their bluff and say, you can give me a lot more than that. I don't know that I would recommend that too.

SPEAKER_00: 21:57

But it and it from the flip side, like it's a it's a useful tool for for parents to say 19 is is all you know all we can do. Um that may not technically be true. And and and it's important to know that it's not technically true because maybe there is a need and you want to be able to give more than that in a specific year, because there's a specific need in this year, and you want to be able to do more. It's important to know that, like. No, you don't pay tax on that unless you've given more than$15 million away in your lifetime.

SPEAKER_02: 22:30

Trevor Burrus Yeah. Client example, the the grandma at about a$3 million estate sold a chunk of land and wanted to pay it out to the grandkids and kids and was going to do it over like three and four years because she didn't want to trigger the gift tax. And I was like, she's not going to owe any gift. She's not going to, you know, like you can do it all, you could give$100,000 to I think it was they were trying to give$100,000 to like seven people over seven years or over however many years it was going to take. And I was like, no, you can just do it all now. Like she wants to get the money out, but like, well, you know, the limit's$18,000,$19,000. I was like, no, you don't have to wait for that. Yeah.

SPEAKER_00: 23:05

Unless you have an estate tax problem, like you are approaching that$15 million mark, like you you probably don't need to worry about it.

SPEAKER_01: 23:12

Yeah.

SPEAKER_00: 23:13

Yeah. You know, you just you you have to file the form, um, but yeah, you don't need to you're not going to end up actually paying tax on it. It's just you have to report it. Um that's an interesting place to start. Because that's often often misunderstood.

SPEAKER_02: 23:32

Yes. So like that gift tax thing is uh it comes up all the time, but like it it's a number to factor in, but it's not a a limit by any means. Um what about how to get like I it is different gifting money to a minor versus an adult child. Um because I I I do deal with that with clients 40 years old trying to, you know, seed something for their eight-year-old or five-year-old. You know, we come up with and it's a little bit unique, but let's talk about giving to adult children. Um I gu it's not really complicated. You just write them a check to them, right? Yeah. You know, it's like you don't have to worry about the account type and all this.

SPEAKER_00: 24:08

Um Yeah. And if and if you truly don't want to have to worry about filing that gift tax um form if you're going over the annual exclusion and you're married and your child's married, you can give 19,000 to each spouse, and your spouse can give 19,000. So that's four times nineteen. What is that, 70, 76,000? So really functionally, the the the you you wouldn't have to file any paperwork till you went over that amount if you structure it properly. Trevor Burrus, Jr.

SPEAKER_02: 24:40

And you could in that example, you could write a check to Colin and write a check to Rita, and there you go. That's it. Yeah, it's easy.

SPEAKER_00: 24:50

I mean, there are all sorts of rules you can gift other assets too. Like you could gift appreciated stock, um, you could gift property that's appreciated. Um the the rules there are that that the recipient would then owe tax on any gain when they sell it. Um you know, they would inherit your cost basis for the gift. Um and so, you know, there's some planning that can go on around that. Like if the parents are in a high tax bracket, the child's in a low tax bracket, it may make more sense for the child to sell the security rather than the parent. Um step up and basis. Aaron Ross Powell Well, you know, then now you're talking about estate planning considerations. But yeah, like if if you're within if you're if you're gonna die soon, obviously it may it may be worth waiting and so not gifting highly above.

SPEAKER_02: 25:51

You're talking about if you like you let's say you have you bought some Apple for 60, it's now worth 100, and you'd like to give out of the Apple shares. Like, do you sell it? And you were gonna sell those anyways to fund the gift. Um But just we've talked about this in the past. Basically, step up and basis where when you pass away, non-tax deferred or tax-free accounts, and like you talk about like if you gift while you're alive, you inherit their cost basis. If you gift when you're dead, they inherit the fair market value as their cost basis. Basically, can be very worth waiting to gift non-retirement assets to people. Um if they're highly appreciated. Yeah. They're highly appreciated. Plus gifting retirement assets, it doesn't really work that way. So that's I don't want to derail us there. Um what about giving to to children?

SPEAKER_00: 26:39

Yeah, I think it's important to think about what the gift what you want the gift to be for, uh and what access do you want the kids to have and when. Um and so um if you are giving because you want to support their education, um, you know, I think 529 plans are a great tool, um, especially 529 plans like funded by a grandparent. Um, because for for tuition or for the student aid calculation on the FAFSA, the grandparents' assets don't count um it whereas the parents' assets do. And so you if you as a grandparent open up a 529 account for your grandchild's benefit, um that doesn't count against them for receiving financial aid. Like the if the parent were to open one for their children, that would count against them for for receiving financial aid. But regardless, I think what 529 accounts are great. The basic idea is you can um there are sometimes state tax benefits uh associated with giving um to them. That's a state-by-state rule. Here in Virginia, you can deduct$4,000 per um beneficiary per account. So functionally you can deduct many times$4,000 if you just open multiple accounts. That's an odd state rule. Others, others cap it, you know. Connecticut, I know, caps it at$10,000. You can deduct from your state taxes when you donate to a$529 account in Connecticut. Um those are state-by-state rules. But the basic idea is the federal rules is you you put after tax money into it, it grows tax deferred, and as long as it's used for education purposes, qualified education purposes, you you don't pay any in any tax on the growth either. Um so it's totally tax free. Um qualified education, obviously college counts, tuition, room and board, books, computers. There's now expanded use for K through 12 education. Um that was a recent change in the big beautiful bill. It used to be you could use 10,000 per year for K through 12 tuition. Say your children go to your grandchildren go to private school. Um you can you can use up to 10,000. Now that limits increased to 20,000 per year, and and you can also use it for a few other things, um like tutoring and um, you know, certain educational services. Um so I I love 529 accounts for that. I think it's it's um and and especially if you want that, if you want to be pretty sure that that's gift is gonna go towards education, yeah. 529 account's a great, great tool.

SPEAKER_02: 29:31

It may be a rare case, but if you if you are worried about you can give too much to a 529 though. You know, like it again, it's not common, but let's say you're trying to leave a you know, you can give too much because you could let's let's say you seeded$100,000 to$529 and a kid gets a full ride scholarship. Yeah. Kind of messy to get that money out. But like, and then so that may or may not, that's not relevant to everybody, but that is something to consider there. And so if or if if either they are worried about giving too much or they want to give to other areas, like what other options are there besides the 529s? What if you just say, like, no, I want to kind of help with the down payment someday? Like, not for the adult child. Um, for you know, a five-year-old. You want to just grandma wants to give them a thousand bucks a year, not give it to a five-year-old, but let it build up and compound, kind of like the old gave you a savings bond type of thing. Sure.

SPEAKER_00: 30:29

Yeah, so there's there's a couple options and and one new one that I'm sure we'll we'll talk about. But um right off the bat, you you know, you children can own brokerage accounts. Um they're called custodial accounts. There, there's two acronyms, UTMA or UGMA. And it's essentially just a regular taxable brokerage account. Um and since minors can't own property outright, there's a custodian named. And so that has to be an adult who oversees the account until the the child is old enough. And so that that I think is a is a great option. Um you know, you can invest it, you can let it grow. Uh it's important to understand when that gift becomes accessible to the to the recipient. And and um it varies state by state, but it's usually either 18 or 21. And then that custodial account drops away and it's just a regular brokerage account at that point. And the child, now an adult, has full control over it to use for whatever they want, whether it's school down payment or beer money. So that's that's the thing.

SPEAKER_02: 31:45

Like that is the way to give. Like, if you wanted to, you know, you have a five or an eight-year-old granddaughter or kid and you want to give them that money directly. It is their money. You have no control once they turn 18 or 21, for better or worse. And so I think a lot of parents are like, oh God, if I, you know, they can grow, you know, maybe it grows to$100,000. Would that be a good thing if I was 18? Uh you know, hopefully, yeah, yeah. Just that's a good thing to know that that is you got no no say on it after that. It is theirs.

SPEAKER_00: 32:15

Yeah. Um Yeah. And so there, the amount, the amount that you're giving obviously should factor into.

SPEAKER_02: 32:21

Something, you know, something I've helped with some clients who, in this example, like they want to start seeding something for their kids outside of 529s. They just use a brokerage account in their own, in the parent's name. Of like if it's it it depends how much we're talking about. But if it's like we're gonna put$1,000 a year in here for each kid, it's not gonna grow to some insane amount. And then when they are that way two things happen. One, the parents in control the whole time. And they could say, like, oh, my kid's kind of a knucklehead at 18. I don't want to give them that yet. Like it's earmarked for them and they can give it. It may not be the most tax-efficient way, but it's not like a tax-devastating way to do that. But it's not in a custodial account, it's not in a 529, it's just a brokerage account in the parents' name that they know is going to be for the kids, and they could give them the$19,000 or whatever it'll be when the kid turns, you know, for Chris, like whatever, when they're older. Um, I I see that quite frequently too. That because there are the there are some restrictions and trade-offs to the 529 issue and the cust in the Utma and Ugmas that we talked about, that is always an option. Um I guess by that token for any age kid, you can just kind of have it in there. You can kind of give it mentally, and it grows in a brokerage account, and then you can give it out of that later on, too. It doesn't always have to be. That's more of a planning tactic of like mental accounting thing. Um nothing happens from a tax perspective when you do that. Nobody's considering that a technical gift, but like mentally, that's one way to balance it of like, okay, we're gonna cede this account, that's for giving to the kids and give out of it at in time.

SPEAKER_00: 33:54

Set them up as the beneficiary of it or something like that. Trevor Burrus, Jr. And then the other option which we haven't talked about is like if you do still want more control, um that's where trusts can come in. Um and and now we're in the realm of of you know uh irrevocable trusts if we're giving, if we're actually giving it to get it out of our estate, um, but we still have some controls over it. Now, if it's a true gift, you technically can't be the one in control of it anymore. Um but there are other forms of trusts like grantor defective trusts where where you technically are still in control, you get taxed for it, but um it's out of your state for state tax purposes. You know, I I don't want to get into all the the legal stuff there, but um yeah, a trust is how you exert control over an account. Like if you don't want that child to have full access to it when they turn 18 or 21, you know, that's that's what trusts, one thing trusts can do. And that's a whole you know, rabbit hole separate episode to go um go down, you know, because there's expense involved in setting up a trust like that and we're maintaining and whatnot. So you know that that may be a good fit for some people, may um for most people, uh unless we're talking about huge sums of money, I'd I'd tend to recommend against against it.

SPEAKER_02: 35:22

Yeah, yeah. Yeah, definitely I I I think a good takeaway, we it comes up a lot. Like if you're worried about the estate tax, if you're if you're passing on a$15 or$30 million estate or gifting that much, like it's a different conversation. And also like back to the whole should you plan for it thing, it would be stupid to not plan for at least account for that if we're talking that type of account of an estate. So probably definitely you know different different conversation for those folks, but uh the kind of mass affluent still, I mean, it this has been very, very relevant to think through. I mean, I think what are our main takeaways? Like there's lots of different ways to give. Um there's different accounts. Well, did you want to talk about it? Yeah, let's talk about the new account.

SPEAKER_00: 36:00

Let's talk about the new one. Uh let's talk about Trump accounts. Yeah. Um I don't know. Do you have uh do you have any views on them off the bat?

SPEAKER_02: 36:09

I, you know, at first like this is brilliant. So the idea is that it's oversimplifying like an IRA for kids, right? Like in in a sense, like here's some money that you can give to kids that they can it can start growing very early on. Um and there's a couple of ways they can touch it along the way. On the surface, I was like, this is great. Like I think this is awesome. Like, especially if we're gonna have this, we have a savings crisis and the Social Security's got all these issues. The more that people can say for themselves, the better. Um, like everything, there's trade-offs and there's pros and cons to it. And there's so I just I feel like what I read is changing all the time on like when they're going live, how is it actually going to work? That I've kind of put a pen in it for the time being until there's a little more clarity.

SPEAKER_00: 36:57

Um Yeah, not all the rules aren't done being written. You know, the bill that's a lot of things. That's part of it, but there's still guidance that needs to be issued on on some areas. I mean, I think about it like there's two there's two ways to think about it. Um the first or two big aspects to it. The first is uh the the$1,000 bonus that you get if you were if you have a child born between now I'm gonna mess up the dates, but is it 2026 and 2025?

SPEAKER_02: 37:26

I think last year included, because we had a baby last year, and I was like, I'm pretty sure our baby should qualify for that thousand dollars.

SPEAKER_00: 37:32

So, you know,$1,000 that's free money from the government that they'll seed into an account for you, take it and run, you know, by all means. Um then there's the contributions that can be made to the account on behalf of the child. Um, and it there's there's a limit for how much I think it's$5,000 of friends and family can gift per year to to the account. And then there's an employer um gift amount that can be given. Uh uh, I want to say it's another$2,500 a year. Somewhere in there. Um say again? Somewhere in there, yeah. Yeah, don't quote me on these numbers. Um But you know, so that money is put into the account. It's after tax, there's no deduction associated with it. Um so this is after tax money that's going into the account. Um, and then it can grow, be invested and grow tax deferred, like an IRA. So any growth you can buy and sell securities within it, you don't get taxed on it until money comes out. Um and there are some like IRAs, there are some ways to get money out without penalty early. Um, you know, for education, for um First time home. First time. First home. Yeah. There's some other exceptions, exceptions to it. Um so you don't pay a penalty if you if you if you take it out early for that. Um however, you do still pay taxes on the growth when you pull the money out. So it's not like a raw But that's like 59 and a half, right?

SPEAKER_02: 39:16

Is subject to that. Like it's no.

SPEAKER_00: 39:20

Any growth um in the account that you pull out uh is subject to income tax. Trevor Burrus, Jr. Yeah, yeah, but but like the penalty. The penalty, yeah. There's a 10% penalty if you pull it out before age 59 and a half. Right. That's what I was saying. And it's not a qualified um exception to it. So you pay income tax and the penalty if you take it out early to be able to do that. That's what I was saying.

SPEAKER_02: 39:45

It's it's like an IRA that you can contribute. You're not gonna pay tax if you buy or sell along the way, but when you turn 59 and a half, you're gonna have to you can then pull money out, but you're gonna have to pay tax on it again. Um so that that's where that framing came from. But then there's a couple of things you can use it for along the way. Um I think that's a good idea. But like understand, like that that money's got strings on it for a very long time.

SPEAKER_00: 40:07

Because we're talking about Yeah, and if and if if you uh you want to help your grandchildren out with their retire with starting to fund their retirement, you know, sure, that could be a great way to see.

SPEAKER_02: 40:19

Go if you go pull it, find a time value money calculator, put six thousand dollars as the present value, then add a five percent interest rate for like after inflation adjusted returns, and then put sixty years as the time period, see how much it turns into. You might think it's nothing. I'm gonna do it real quick because it's yeah. Um, don't really like six. And then think about doing that every single year. Like it's I think it's fantastic, but go ahead. Sorry.

SPEAKER_00: 40:51

Yeah, I mean, and and recognizing that like if the the benefits of it are are going to accrue to the wealthiest people who can afford to gift that that to their children. And so, you know, there's some equity issues here. The other thing to keep in mind, and and this this I think is is where the the value of these accounts is is probably overstated, is that when you take money out and and it's and you pay tax on it, you are paying tax on it at ordinary income rates. Yeah. And so you may get that tax deferral, but you're gonna pay tax at ordinary income rates, not capital gains rates. And so, like if you had invested money in a regular taxable brokerage account for that child, like a UTMA, UTMA, well, um, they would only be paying tax at capital gains rates when they take those funds out or when they sell.

SPEAKER_02: 41:47

I think that's from one of the counter-arguments I've seen is like, especially if a grandparent wants to do it, you know what's better? Open up a brokerage account, contribute to it, because there's no now there's no limit to how much you can contribute, but it's after tax money either way. Let it grow, and when you die, the kid inherits it, step up and basis, there's no tax event at that point. That is the more efficient way to do it. So um so like that's where like on the surface, love the idea. Let's encourage people to say this is nice, but there's some intricacies there that kind of okay. Like, because you're getting you're not getting the best of any of the worlds. You're not getting the tax deduction like you would an IRA, you're not getting the tax-free withdrawal like you would a Roth. You are getting tax deferral, but you're not getting capital gains treatment at the end. So yeah.

SPEAKER_00: 42:36

Also And some things to keep an eye on, though, is you know, it may be that these end up being eligible for Roth conversions at some point. And and so I don't think all the rules are written yet as to whether they will be, but it looks like they will be.

SPEAKER_02: 42:54

Even if they are written, they can be rewritten. And that's where it's like, I mean, okay, if this is for kids today, like what's the younger, like 18 years old, 41 and a half years until people really start pulling money out of this? Like a lot's gonna change between now and then. So definitely an option. Lots to come on the Trump accounts. I kind of think there's some other tools, at least initially. Um like as things are getting sorted out, but it's at least good to know that these are gonna be coming, and I'm sure we'll be hearing all about them because of their lovely name. And I think it's also a fun time to point out like this is how accounts are named. Like, like people, Trump account people know who that's about. Roth accounts are named after a person. You know, like it doesn't stand for anything. So, like, this is how it happens. It's kind of fun to see these things come down uh live.

SPEAKER_00: 43:39

So, anyways. Yeah. Um man, what what this is a I mean, it's a it's a deep topic. I'm trying to think what what haven't we talked about? We've only scratched the surface on some some areas of this, but um just to kind of wrap it all up, you know.

SPEAKER_02: 43:58

I I think lots of ways to get lots of lots of ways to give. It's a little different if you're giving to a minor versus an adult. Um you know, giving while you're alive versus when you pass away, there's some slight differences. Um lots of options. The gift tax, the whole$19,000 thing is not like a super real limit. Uh it shouldn't be a restriction. Um but I think the biggest thing is not the mechanics of How to give. It's just what are you trying to accomplish with the gift? What's the best way to accomplish it? It doesn't have to just be a check to somebody. Um, and I mean, this is the eternal challenge as a parent. How do you give, you know, without spoiling? And uh I I I'm gonna butcher the quote, but it was something that was like, and it's a a man who said this. It was like the wealthy man is tormented on how to teach his children the lessons that got him where he was, you know, like because it's just like a lot of like wealthy parents got there because of the struggle that they had, and now they have a child who doesn't have to struggle. And so um super, super deep topic. Um, you know, if you if you're in your 60s, 70s and adult children, you've been struggling with this issue for a very long time. And so it's it's really nothing new. Um and so I think I think it's I one thing I like, don't be afraid to give all your life. I think that's it's really, really cool. But um, and I also would encourage people to talk about it. I I don't think it helps anybody for it to be a black box how much mom and dad have on either end. Now, if you're worried about a kid abusing it, um maybe that's one thing. But I I just think the more transparent, the more facts, and the more proactive you can be about talking about this stuff, generally the better.

SPEAKER_00: 45:40

Um Yeah, I would agree with that. Um, yeah, like like we talked about a little bit last week with with what changes when you're retiring. Um yeah, the you're preparing your the next generation for a time when you won't necessarily be around, whether that's after your death or if you're incapacitated. And and so like the more uh uh open, frank discussions that can be had intergenerational intergenerationally, um, you know, the the better um for for everyone. Uh so that that your wishes can be carried out and and um yeah, so I I know uh the conversations like this, family dynamics, they're always messy. Um, but uh they're they're uh it's it's getting into the mess sometimes is is better than avoiding it. Um and uh yeah, I uh like you said, gifting can be one of of life's greatest pleasures too, you know, and to be able to see the gift, see the child, see the grandchild and what they can do with that gift, whether it's education or whether it's help with their, you know, home down payment or you know, starting a business, like it's pretty cool to be in the position of being able to help. Um and and that can bring a lot of satisfaction and and and joy. So Yeah.

SPEAKER_02: 47:06

Last thing I would say is we've just been talking about giving to kids. There's all sorts of other people and organizations and places you can give. This has been focused on the kids piece, and it definitely doesn't need to be the only thing you're doing.

SPEAKER_00: 47:16

Um Yeah, for sure. And when you say like when we talk about like how much is too much, you know, there there are plenty of people who have estates that like, gosh, that might be too much to give to someone. And and then I think like we should broaden the conversation to talking about legacy in other ways, you know, what what charities, what causes do you care about? Um yeah.

SPEAKER_02: 47:39

Yeah, this is uh probably too late in the conversation to bring it up. But a a good good friend of mine who's it's probably will be thinking about the estate tax. And 20 years ago, he was all about giving to his kids, had a ton of life insurance, kids are the beneficiaries for all this. His kids are like 24 now. He's like, you know what? They don't need this much money. I'll leave them some. And so he's it's your his priorities have shifted, and I think it's okay to have your priorities shift too. And like if you're 67 a day thinking about it, your answer might change in 20 years, 15 years, and that's okay. So just kind of wherever you're at, evaluate it. None of this is outside of irrevocable trust irreversible. So um it's okay to change your mind, and maybe that's an argument to not tell your kids how much you might pass on if you change your mind later. There we go. Yeah, exactly. That's the challenge of this. That's the challenge of this. So uh, but no, this has been this is good. Yeah, very deep topic, very, very complicated, multi-layered. Um, but I think this is good.

SPEAKER_00: 48:39

Yeah. Thanks for the conversation. Cool. Well, my pleasure, man. Thanks for being here. See you next time. See you next time.