Long term financial implications of gifting money to adult children while still alive?

[Jimmy Choo]

Just wondering if we can get general financial advice, in connection with giving our two adult children some of their inheritance now, rather than after our deaths. We are both in our late 60s, ok health wise, and don't have a lavish lifestyle through choice.

A friend mentioned to us recently, that he feels it is better to give them what we can afford now, while we are still alive. He did this himself, because he feels that they can put the money to better use while they are young, and needing deposits for houses, along with other things.

Another aspect that we are wondering about, is the advice that this person mentions in this thread. Their accountant appears to have told them to pass on the property, so that it will not be taken into account on the calculations for the Fair Deal, if they need to avail of it. Obviously, the 5 year rule will apply to the Fair Deal. In our case it would just be cash.

What needs to be borne in mind, before making this major decision,from a financial point of view?

Not really interested about the rights and wrongs, that people feel about spoiling them, but rather what we need to be careful about financially.

Had hoped to play around with figures on the Fair Deal calculator but it appears to have been taken off-line recently.

Would also like to know what would Revenue implications or views be on this.

 

[_OkGo_]

Another aspect that we are wondering about, is the advice that this person mentions in this thread. Their accountant appears to have told them to pass on the property, so that it will not be taken into account on the calculations for the Fair Deal, if they need to avail of it. Obviously, the 5 year rule will apply to the Fair Deal. In our case it would just be cash.

Do not use that thread to base any decisions on. The OP provided very little and very confusing information. It was also a second property that they were discussing.

What needs to be borne in mind, before making this major decision,from a financial point of view?

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But at a very basic, you should not be giving away money that you can't afford to give away and you need to prioritize your own needs. If you feel you have a lot of wealth, you still don't need to give away a big chunk all at once. You could even take advantage of the small gift exemption and pass on up to €12k each year to a child and their partner.

I would forget about the Fair Deal scheme and deal with that if/when it happens. It could be more likely that one of you becomes widowed and needs to live on a much reduced pension. Having access to cash could be critical.

 

[ThisisMax]

I would look at what your pension plan is like for the rest of your life. What assets have you and how are they valued. What cash do you have and how much can you give? Small gifts exemption is the easiest way to do it for a start and if you have grandchildren you can help them too. €3k per person per year.

 

[NoRegretsCoyote]

I would forget about the Fair Deal scheme and deal with that if/when it happens. It could be more likely that one of you becomes widowed and needs to live on a much reduced pension. Having access to cash could be critical.

The rest of @_OkGo_ 's advice is excellent but the Fair Deal should be a factor for people with a lot of financial wealth in my view. It's likely that one or other of a couple in late 60s will need nursing care in the next 20 years. If you have a lot of liquid assets the Fair Deal can get burned through quite quickly.

Otherwise the big advantage of giving an inheritance early is:

1. Kids are able to use it to invest in housing, education etc, more productively than you are;
2. Group A threshold (currently €335k for a lifetime) is likely to be higher by the time you pass away. I don't see much downside to using it all up when still alive (if you can afford it) as it might have increased by the time your kids come to inherit anyway.

 

[Gordon Gekko]

My advice would be to make sure you’re looked after first and covered, insofar as can be predicted, in terms of the future.

Then if there’s a surplus, I’d look to move it on to the next generation tax efficiently, but not in a way that stifles their ambition or work ethic.

 

[_OkGo_]

The rest of @_OkGo_ 's advice is excellent but the Fair Deal should be a factor for people with a lot of financial wealth in my view. It's likely that one or other of a couple in late 60s will need nursing care in the next 20 years. If you have a lot of liquid assets the Fair Deal can get burned through quite quickly.

To qualify my initial comment a bit further, what I mean is that the primary focus should be on whether the right thing to do now is to transfer wealth to the children. Can the OP afford it?

Taking an example of a couple with pension income of €50k (state pension plus DB). 40% is assessed from their income so €20k.

Nursing home fees are ballpark €60-70k/yr. Therefore the remaining €40-50k is based on assets which are assessed at 3.75%. This effectively means that assets in excess of €1-1.3m put this couple above any contribution from the fair deal.

If they lived in Dublin, it is not unlikely that they would have a PPR of €600k+. So that would leave them with liquid assets of €400-700k that could be assessable depending on the cost of the care home.

So I don't think it would make sense for an otherwise healthy late 60s couple to gift a lot of their wealth purely for the potential to save/earn 3.75% at some future unknown date from the FDS.

If the couple were much wealthier or higher income, then giving away their wealth in excess of the assessable amounts makes no difference to the FDS, they would still be substantially outside the limits. i.e if you have €2.5m, giving away €500k makes no difference to the FDS, you still won't qualify.

But on the opposite side, if the couple were content with smaller incomes and living in a much less expensive property in the countryside, they would have much more scope to gift their wealth.

Where the FDS should be more of a motivating factor is if one spouse is widowed and they are a little older (more likely to need care, less likely to be spending their wealth). At that point, they would be assessed on all their assets at 7.5% so if it makes sense financially then they should pass on inheritances early

 

[NoRegretsCoyote]

@_OkGo_ I agree it depends a lot on the precise circumstances and without knowing them it's hard to advise. It may well not be relevant in this case. However I've read a few AAM threads (and had elderly relatives) with six-figure cash balances on deposit and neither the willingness or ability to spend them in life.

Otherwise the numbers are hard to find but IIRC about 40% of people make use of the Fair Deal scheme for an average of a year. I think a lot of people underestimate probability of use.

 

[_OkGo_]

However I've read a few AAM threads (and had elderly relatives) with six-figure cash balances on deposit and neither the willingness or ability to spend them in life.

This is very true but I still think the use of that money should not be influenced by the fair deal scheme.

IIRC about 40% of people make use of the Fair Deal scheme for an average of a year. I think a lot of people underestimate probability of use

I would intrepet this statistic differently. Yes you are very likely to need nursing home care but usually it is for a short period of 1-2 years on average.

So assuming all your wealth is within the scope of the FDS and you decide you can part with €100k then you might get a 'return' of 3.75%, the assessable percentage, for 1 or 2 years at some point in the future.

However, that same €100k will most likely be saving the child mortgage interest at 3% plus for each and every year they have a mortgage.

It's why the FDS should be a very minor consideration. It's like a small financial perk at the end for having made the right decision to pass on some of the inheritance early. That €100k could have a huge financial benefit to the receiver of 3% plus for the next 5/10/20 years. While the FDS, if you need it, will then return 3.75%.

 

[Laramie]

If you give the €3k per annum to your children it will be piddled away on lifestyle. This may help them at least have a nice holiday every year though.
However if you give them €30k it might be used toward a mortgage reduction, house purchase, home extension etc. Of course it might also go toward a better car than you already own. How would you feel about that?

I give the smaller amount to my children. One of them I know puts it toward mortgage, creche fees. The others just spend it.

I will help out with a larger lump sum when they have a specific project in mind such as home projects etc.

 

[Jimmy Choo]

Thank you all for the informative replies which we have found to be very helpful. We have a lot to mull over now as a result of your advice.

Thanks again.

 

[llgon]

I give the smaller amount to my children. One of them I know puts it toward mortgage, creche fees. The others just spend it.

Sounds a bit unfair to the others. I'm sure all your children have both essential and discretionary spending. Whether they allocate your gifts to a particular area should make no difference.

A child who puts it towards the mortgage and creche fees may be 'piddling away' a lot more of their overall income than the others, this is what should be considered by the OP.

 

[Itchy]

If you give the €3k per annum to your children it will be piddled away on lifestyle.

Is this projection or just asinine? Then again, maybe you know the OPs kids?

If you are considering generational planning, its best to include the recipients in the planning process. If they are not on board with how you feel things should go, then don't proceed. Making decisions like this in a vacuum, is a recipe for disaster.

 

[Gordon Gekko]

We plan to help our kids out when they actually need the money.

That’s typically buying or upgrading a house, paying creche fees, paying school fees, etc.

There’s not much point “doing a Queen Elizabeth/Logan Roy” on it and having people who are themselves old inheriting value.