Retirees, don’t wait until death to implement gifting strategies
Americans age 70 and older hold a record-high 30% of the country’s wealth, even though they account for about 10% of the population.
Meanwhile, recent inflation and rising costs have moved the American dream out of reach for many young adults.
Boomers are sitting on an estimated $124 trillion, most of which they will eventually transfer to future generations. Meanwhile, 42% of Americans under age 30 say they are barely getting by, according to a recent Harvard study. It’s a disconnect that has never felt more glaring.
Instead of waiting until you die to transfer those dollars to children and grandchildren, retirees should prioritize making gifts now.
Americans of average health in their mid-70s have a life expectancy somewhere between 85 and 90. If they avoid gifting for the next 10 to 15 years, that means their kids will likely be in their 60s when they receive any inheritance.
Most people in their 60s have already cleared (or failed to clear) many of life’s most difficult financial obstacles: buying a home, paying off college loans, raising and supporting young children. The impact of receiving money in one’s 20s and 30s is far greater than receiving money near your retirement age.
Many couples have concerns about gifting money during their retirement years because they don’t want to run out of money, especially if a major health event occurs. Make no mistake, retirees should first make sure their finances are secure before deciding to initiate major financial gifts. Working with an expert to properly stress-test retirement portfolios is an essential first step to remove the anxiety that could accompany gifting.
Other common objections include the fear of spoiling children, concerns your kids might spend frivolously or the idea that receiving cash gifts might lead those on the receiving end to become more dependent on annual transfers. Retirees who feel strongly about those objections should consider targeted gifting.
For example, pay for a grandchild’s piano lessons; take care of a portion of day care costs; cover part of the down payment on a new home purchase; or bankroll a vacation. You might even consider joining your family on the trip.
There are also potential tax benefits of gifting during your lifetime. Minnesota is one of 12 states (plus Washington, D.C.) that imposes a state-level estate tax upon death. Estates above $3 million per individual pay a progressive Minnesota estate tax ranging from 13% to 16%. For some, making cash gifts to reduce the value of your estate prior to death will mean more money for your beneficiaries and the causes important to them.
In 2025 and 2026, individuals can gift up to $19,000 per recipient without having to file a gift tax return. That means a married couple can gift $38,000 per year ($19,000 from mom plus $19,000 from dad) to each child or grandchild. Most simply write checks. For those in a high tax bracket gifting to family in a low tax bracket, it can be advantageous to gift appreciated securities and let the recipient pay the taxes at a lower rate.
In addition, 529 college savings plans are a wonderful option for grandparents who want to help their grandkids with school costs. Grandparents control the dollars and reserve the right to take the money back, but the money is separate from their estate while in the 529 investment account. Those in more complicated situations or who prefer to place restrictions on their gifts should consider enlisting an attorney to navigate the many types of trusts.
Gifting is a highly personal decision. Those with the desire and the means should be thoughtful about creating their own gifting plan. Doing so will provide bigger benefits to your kids when they need it most, and you’ll be alive to see the impact your generosity can have on loved ones.
Authors
Ben Marks & Matt Arnold
Investment Advice offered through Marks Group Wealth Management, a Registered Investment Advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments and strategies may be appropriate for you, consult with us at Marks Group Wealth Management or another trusted investment adviser. Mention of individual equities in this commentary are for informational purposes only and are not intended to represent a recommendation.
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