hands holding small gift box

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Have you been told that Granny and Gramps are gifting you a lump sum of money?  Or a family member is gifting funds to your children?  It happens more often than you’d think.  What does this mean for you?  Simply put, you are being offered a huge financial leg up in life. So now what do you do? How do you make sure you handle these gifted funds responsibly? Adulting can be tricky sometimes, especially when it comes to finances. No worries. That’s what we’re here for! Take a deep breath, grab a cup of joe, and keep on reading.

Why do people gift funds in the first place? Because they like you? Actually, many wealthy folks use gifting as a way to decrease the value of their estate over time.  It is a way for them to give a financial boost to the younger generations of their family. From our anecdotal experience, the two most common uses of those funds are for a down payment on a home and for a child’s education. Currently, a person can give up to $14,000 to someone else on an annual basis, without any tax implications.  There is also a max amount of lifetime gifting allowed.  If you want to really get down in the weeds, the IRS rules are here. Isn’t interpreting tax lingo fun?

 

Here are some tips to keep in mind about gifted funds:

  1. Don’t treat the money as a supplement to your income. In other words, don’t spend it on stuff you otherwise wouldn’t need to buy, just because you suddenly have some extra dough. Our rule of thumb when it comes to gifted funds: Stand on your own two feet as best you can. Pay your own bills and expenses without turning to the gifts unless absolutely necessary. If you can do that, you’ll be just fine when the gifting stops, which brings us to Tip #2.

 

  1. Be prepared for the gifting to end. Even if you’re receiving gifts on an annual basis, it is very unlikely this will last forever. You should not assume you will be given funds every year. These gifts are dependent upon something outside of your control, i.e. another person’s goodwill and financial wherewithal. Making the assumption that the gifts are a never-ending windfall can quickly lead to the bad habit of spending money you just don’t have. Instead, ensure you use the money you receive responsibly. Like how, you say?  Put it aside for a down payment on a home, save for college, sock it away in a brokerage account, or use it to max out your retirement savings.

 

  1. Consider seeking advice from professionals. Many people have “what’s next?” type questions when they aren’t used to making decisions about money above and beyond the income they earn from their job. It often helps to talk to professionals if you have questions or concerns about gifted money.  Professionals like estate attorneys, financial advisors, or accountants likely all have experience helping people make informed decisions in these types of situations, and can be great resources for you to turn to.

 

  1. What to do if your kids are being gifted money. There are many different routes to take when it comes to managing assets for your kiddos, like starting a trust fund, or putting the money aside in a college savings plan.  Whatever you decide, it is important to remember that you are obligated to do what is financially in the best interest of your child. Those funds should be used to better their financial future, regardless of their age. This scenario also creates a great opportunity for you to talk about money and savings with your kids in general. The earlier they understand how money works, the better. Spoiler alert: We’ll be writing a blog post on teaching kids about money soon!

 

Receiving cash gifts from relatives means you’re being given a financial advantage over a lot of other folks out there.  Now it is up to you to be smart about handling the money. You’ve got this.

If you still have questions, reach out to us.  We’re here to help!

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