Q. Can I attach conditions to gifts of money or just put it in IRAs for my children?I want to start gifting money for estate planning purposes, but my adult children both have spouses I think would just try to spend the money on short-term instead of using it for long-term savings.
— Mom
A. We’re glad you’re planning for the future.
Estate planning is an important area of financial planning, and it will allow efficient and effective transfer of assets to your beneficiaries.
Although usually a significant part of the transfer happens after a person passes away, there are several strategies and steps that can and should be taken when you are alive in order to maximize benefits, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.
At the simplest level, in 2023, you can give $17,000 to anyone without having to pay any gift taxes on it, or $34,000 between you and your spouse, he said. Those numbers are set to increase to $18,000 and $36,000 in 2024.
If you gift additional amounts to anyone, then it is counted towards your lifetime exemption amount, which is $12.92 million until 2025, after which it is set to drop to $5.49 million but it will be adjusted for inflation, he said.
The lifetime exemption amounts are double for married couples.
Amounts over the lifetime exemption incur gift and estate taxes, he said.
“If you are concerned that your children and their spouses would not be responsible with the money, you can attach certain conditions to future gifts made while you are alive, such as achieving a specific savings rate or investment goals,” Panambur said.
If you would like to attach conditions to your children inheriting your assets, a trust is one of the most flexible instruments to achieve this, he said.
When you create a trust, you can add conditions to the terms of the trust and the trustee who is legally responsible for managing the trust will carry it out as per your wishes, he said.
“You can add money to your children’s IRAs if they have met all the eligibility to contribute to an IRA such as having earned income or income below certain limits,” he said. “However, the IRA will be owned by each of your children only as there is no such thing as a joint IRA.”
While there are adverse consequences to withdrawing money from an IRA, early such as taxes and penalties, you cannot prohibit your children from withdrawing money from the IRA, Panambur said.