Giving to loved ones often comes with the benefit of tax deductions, but there is much more to consider when passing on family wealth. With forethought and care, gifts can enhance the lives of both the recipient and the giver.
Giving to loved ones often comes with the benefit of tax deductions, but there is much more to consider when passing on family wealth. With forethought and care, gifts can enhance the lives of both the recipient and the giver.
Give vs. transfer
Every gift carries something more than money or property. It carries spirit, from the giver to the recipient. Often the spirit expresses the giver’s intention: for example, to further the recipient’s education or to provide a place to live and raise a family. Gifts promote the growth and freedom to do so.
Most gifts, however, lack spirit and can be referred to as “transfers.” Transfers move assets from one balance sheet to another. They often leave both recipient and giver feeling that “strings are attached.” Repeated over time, they can create a sense of subsidy. Not all transfers are bad; sometimes they are necessary. The most crucial distinction is to recognize what’s a transfer, what’s a true gift, and how, if desired, to turn transfers into gifts with spirit.
Know thyself
Making true gifts starts with asking the right questions. When most people think about giving, they start with what they want to give. Or they move quickly to asking how they should give, in the sense of which structures they should use. These are important questions for estate planning because often the focus is how to reduce taxes. This is a fine goal, as far as it goes, but it may not touch upon the ultimate purposes of the gift.
When gifting, instead of starting with what or how, consider starting with who: the people rather than the property or the process. In particular, it may make sense to start with yourself, the giver: Who are you?
“Know thyself” is the maxim to adopt. Some questions that help toward that goal include:
- What do you want to achieve with this gift?
- Does it reflect your values?
- Does it bring you joy?
Understand your recipient
The next “who” to consider in the cycle of the gift is the recipient. Recipients may be young—they may not even be born yet. But for giving to work well, it’s best to understand the recipient and how they will be affected by the gift.
Gifts can be like a meteor flying from the giver to the recipients. These meteor-gifts enter recipients’ atmospheres and have an impact. So, just as givers should reflect on themselves, they should also reflect on their recipients, with questions such as the following:
- What is the recipient’s age and stage of understanding?
- What is his or her character—is it formed or still developing?
- Do you trust him or her?
- In short, is the recipient prepared to receive the gift?
The answers to these questions will then allow you to start thinking through the secondary questions of what, when and how to give—and how, if needed, to prepare the recipient.
Fair vs. equal
“Equality” is another major consideration for families. Children have different abilities, aspirations and needs. As a result, parents often give their children different levels of attention, care and advice at different points in their lives. But when it comes to financial wealth, unequal giving can lead to hurt feelings, resentment and even conflict. In fact, the latest UBS Investor Watch survey found that half of US investors struggle to divide their assets fairly.1
That is why, unless special circumstances demand otherwise, it is generally a good idea that parents make financial gifts equally. In particular cases, such as involving a child’s disability or economic dependency, there may be good reasons for giving unequally or for structuring equal gifts differently, based on the recipients’ unique abilities or needs. In those cases, it is crucial to communicate your reasons early and clearly, so that there are no surprises down the road.
Don’t wait to communicate
Once you have gained some clarity about yourself and your recipients, another important factor in giving well is communication. Gifts can’t speak for themselves.
Many parents ask, “When should I start telling my children about our wealth?” There is no one time nor is there just one message. In general, fearing that harm will be done or not knowing how to communicate effectively, sometimes people wait too long and share too little.
Instead, consider communicating more rather than less, sooner rather than later. Most adolescents or young adults may know more than their parents would like to admit. Waiting and keeping secrets can sometimes carry a hefty opportunity cost. Sharing some information can be a chance to listen and to learn from your recipients’ responses.
Want to know more? Read the white paper: Giving wiselyDownload PDF
1UBS Investor Watch, 2022.
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