By Keith L. Davis
As the New Year begins and estate and gift tax uncertainty continues, I think it’s a good time to take a moment and reflect on the social benefits of family gifting rather than just the tax exemption aspects of gifting.
Providing For Children
Sometime ago, a couple came in to discuss gifting to their two children in an amount above the annual gift exclusion. While the discussion began with tax questions, it was really about family. Their kids and their spouses were very hard working DINKS (double income no kids). The parents were thinking about their children’s happiness (and were hoping for grandchildren). Their concern was about “making a difference now” rather than passing on a larger bank account at death. This was one of the most thoughtful, caring and rewarding conversations of my career. It was also a realistic assessment of the pressures children face in establishing families in current times.
Protecting Children (and Grandchildren)
About ten years ago, I visited an elderly woman in poor health at a nursing home. After helping her plan for care, potential disability and death, I stood up, shook hands and began to leave. She said “Mr. Davis, I have one question, “will my kids be ok.”” Wow! This question is the essence of motherhood (and parenthood). No matter how dire the situation is, the concern is “will my kids be ok.”
While “protecting” is a primary concern for most parents, it is usually overlooked. Too often parents consider only direct gifting (or inheritance). While direct gifting provides immediate availability (for spending) direct gifting is often not the best option. Your child (or the child’s spouse), may spend the gift, may lose the gift through poor investments, business failures, creditor or divorce claims. Although it is difficult for a child to establish asset protection trusts for their own assets, parents can establish such trusts for their children. While claims against your child may seem remote, in reality almost half of American marriages end in divorce. All too often, disgruntled spouses seek gifted or inherited assets. You can protect them before it’s too late. You may establish “gifting trusts” to provide a vehicle for gifting to your children in a manner that can protect those gifts from the creditors and predators (disgruntled spouses). There are many design options to tailor these trusts to your child.