Giving Money to Adult Children

All matters financial – giving gifts, handing out subsidies, leaving an inheritance – can cause a lot of angst among parents of adult children. With the best intentions in the world – especially in this era of COVID-related hardship—parents are often of a mind to give their grown kids money today as opposed to leaving it to them in their wills.

Not so fast! Many experts caution that with these handouts parents run the risk of encouraging a cycle of dependency that’s hard to break. Indeed, many parents of adult children have told me they are still supplementing the income of, if not wholly supporting, “kids” in their thirties, forties, and beyond. The experts say that even if you can afford these gifts, by making them you may be sapping your offspring’s motivation to work hard and succeed financially. In other words, there’s no such thing as a free lunch—either for your adult children or for you.

Smith has also come up with three strategies for making financial presents to your adult children:

1. Keep it irregular. Vary the time of year you send checks, and don’t send them every year. While dependency stems from expectation, breaking things up creates doubt, reducing reliability and dependence.
   
   
2. Don’t always give money directly. There are various ways to assist your grown kids indirectly. These include paying their uninsured medical expenses, helping out with a purchase by a grandchild (such as a first car), providing cash for a home remodeling contractor’s fees and covering some expenses for a first baby (such as a stroller, a car seat, a crib or a year’s supply of diapers).Varying the impetus and circumstances of your assistance tends to make gifts unexpected and appreciated windfalls, instead of something recipients come to count on
   
   
3. Confine your help to rare occasions. For example, expenses for key anniversaries or birthdays could qualify. After all, how often does your daughter have a 10th wedding anniversary or your grandson have a 16th birthday? Another irregular impetus would be the need for plane fare and lodging to attend family reunions, assuming these events aren’t annual or bi-annual.

Whether you can give the money without tax consequences to the recipient is beside the point as is the desire to reduce the size of one’s estate to mitigate inheritance taxes. Even if you were rolling in dough, the experts would tell you to keep your assistance unpredictable. By doing so you will be doing your children a great favor by helping them develop self-reliance.

When I published a similar article in my blog, several readers responded. Here are two representative comments.

We lent our son 50k when he lost his job. He sold his beautiful home and is slowly getting back on his feet. He paid 100k in college expenses for his stepson, who flunked out. All this happened in 6 months. He has started monthly payments of 1000. We had to take out a home equity loan to pay our medical expenses and unexpected home repairs. Going to sell. This fiasco has cost us too much. I realize that lending him so much was a mistake. He has time to replenish his funds. At 70, I do not. J.M.

Every year on their birthdays I give my adult children a session with a financial planner. It’s the best birthday present I can think of! P.W.