For many of us, the urge to help our children lasts well beyond their childhood. That desire may drive parents to help adult children with various financial needs—especially big milestones.
Giving money or other assets to adult children can bring you tax benefits—but it may also hurt your finances. Find out how you can gift money to your adult children in a way that’s tax savvy and financially beneficial for both of you.
Rules on gifting money to adult children
Many necessities are more expensive today than just a few years ago. Inflation has pushed up the cost of food and other staples. Higher interest rates mean higher mortgage rates, putting a home purchase out of reach for many families. Education costs continue to rise—the average cost of college in the U.S.Open in new tab is more than $36,000 a year.
If you have the means, you may want to help fund a down payment for your adult children, or you may want to contribute to paying college tuition for your grandchildren.
Still, before you write a check or offer to handle expenses, make sure you know the potential impact on your own finances. You must report gifts above a certain dollar amount to the IRS. Substantial gifts may increase how much of your estate will be subject to tax after your death.
Gift tax limit 2024
The IRS allows individuals to give anyone, family or not, a set amount of funds each year without triggering a tax bill or liability. For 2024, that limit is $18,000 for individuals, and $36,000 for married couples.
The annual limit applies to gifting cash and assets such as stocks and real estate and is adjusted by the IRS regularly for inflation.
Not all money you give to family members will count under the $18,000 limitOpen in new tab. Money paid directly to a college or university for tuition costs, or payments made directly for someone else’s medical care, are exempt from the limit.
Saving through a 529 plan offers a way to pay for future education while enjoying tax benefits. These plans also offer a unique opportunity to gift within the annual limits. You can make a lump-sum contribution of five times the annual gift-giving limit. For a married couple, that means you can give a total of $180,000 to a child’s or grandchild’s 529 plan at one time. However, it's important to note that after making such a contribution, you won't be able to make any additional contributions to the same beneficiary's plan for the next five years.
Taxes on gifts
What happens if you give above the annual limit? You’ll need to disclose the gift to the IRS. Still, you won’t pay any gift tax until you exceed the sizable lifetime gift tax exemption, set at $13.61 million per person for 2024.
When you pass away, the amount of your estate below a specific dollar limit will pass to your heirs free of federal taxes. This is known as the estate tax exemptionOpen in new tab, and it’s also set for $13.61 million in 2024 (doubled to $27.22 million for married couples).
If you give money or assets above the annual tax limit, the IRS subtracts that amount from your estate tax limit exemption. For example, if you give $3 million in taxable gifts to your adult children in your lifetime, your estate tax exemption will fall to $10.61 million for the year.
Note that the Tax Cuts and Jobs Act doubled the size of the annual estate tax. Unless Congress acts to pass a new tax law, that exemption will fall to an estimated $7 million for individuals in 2026.
If your estate is large enough to exceed the exemption, gifting some of the assets within the annual limits can effectively reduce your taxable estate. As an added bonus, giving money before you pass away lets you see your family members using or enjoying the money.
Gifting assets that may increase in value, like stocks or real estate, can be a smart strategy. If the assets appreciate, or rise in value, they won’t be counted as part of your estate as long as you give before your death. For example, if you give stock currently worth $100,000 and it rises in value to $500,000, your estate tax exemption will only be reduced by $82,000 ($100,000–$18,000 annual gifting limit).
Gifting real estate to your adult child
Do you want to gift your home or other real estate to your adult child? Any property value beyond the annual gift tax exemption will count against the lifetime gift tax exemption of $13.61 million for 2024.
Still, your children will face capital gains taxes if they sell the home. They will have to pay taxes on the difference between the sale price of the house and the original price you paid for it. If you’ve owned your home for many decades, those capital gains increases can be steep.
If you leave your home or other property to family members in your will, any capital gains tax may be minimal, since it will be based on the difference between the property’s value when you die and when they decide to sell.
Using trusts for gifting to family
Another option for gifting money or other assets to adult children is through a trust. Despite their reputation as a tool for the rich, trusts can help provide a level of control over your assets for people of all wealth levels. You can use a trust to give money while you’re alive, or to distribute your estate after your death.
In some cases, using a trust can allow you to give to your children tax-free, while retaining limits on how the money is used or when they can access it. Trusts can also help you ensure that the money you gift to an individual is for their use only.
Gifting money without hurting your own finances
Though the urge to help your children may be strong, ensure you don’t jeopardize your own financial security in the process. Taking money from your emergency fund can put you in a bind if you face your own financial challenge. And giving to your children from your retirement savings may mean you fall short of funds later in life.
If you have specific wishes for how your children use the money, consider speaking with them before you give a gift, or give the money through a trust.
Remember that your adult children can borrow money to purchase a car, home, or pay for college tuition. However, you can’t borrow money to fund your retirement.
Consult a tax advisor or another financial pro
Gifting large amounts of money or assets to your adult children can become complicated from a tax and financial planning perspective. Before you agree to a one-time or recurring gift, consider first seeking professional financial help.
A certified professional accountant (CPA) or other tax professional can help walk you through potential tax implications for your gifts and how to handle them.
A financial professional can help you consider how making a gift to your adult children will impact your finances, including your retirement savings and other plans.
Working with a financial professionalis for more than just wealthy or older individuals. If your adult child regularly turns to you to fill a money gap, a financial professional can help build independence by teaching howto create a budget and save.
Finally, you may look to enlist the help of an estate planning lawyer to draft a will and help set up a trust.
Whether you can help your adult children financially depends on many factors. Talking to a financial professional sooner rather than later can help you help your children, without sacrificing your own future.
Author Details
Jeannine DeFoe is a former Bloomberg News reporter who focuses on topics includinginvesting, wealth management, personal finance, and fintech.
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