When is the right time to gift to kids and how much should you gift?
A recent podcast with Tim Ferris and Morgan Housel (link below) explored this issue further.
Morgan Housel was asked if he had a hypothetical $1 billon what would he do for his kids (who are still young). Morgan said he would do a few things; firstly healthcare forever, regardless of their circumstances (Morgan lives in the US so this is hugely important), the best education they could get, holidays and experiences with them as a family and help with a house when they were older. He made the point that after this a lot of the money would be surplus to requirements. He didn’t want to deprive his kids of the opportunity to make their own mark in the world. This is in line with Warren Buffett’s thinking that we need to choose what we allow our kids to fail at for their own good.
We often discuss with clients the idea of giving money with a purpose (education, help with a home purchase) rather than just gifting it because it might be tax efficient. We talk about them being the custodians of the money until they know how they want to deploy it to the next generation (and to make sure while it is in their custody to deploy it as efficiently as possible).
The concept of giving people money while you are still around and can see its benefit/ enjoyment is worth considering. As Peter Mallouk (CEO of Creative Planning, one of the largest advisory firm in the US) says “give with a warm hand, rather than a cold hand”. Any assets gifted to kids also grow in their name thus limiting any future tax cost (versus growing in your own name).
A very efficient way to estate plan is to spend some of the money on yourself. Think of Michael McGrath paying for 33% of every purchase in saved CAT (capital acquisitions tax).
Finally, you could consider some charitable giving. Barnardos have recently launched their Christmas appeal which encourages people who can afford to give to do so, giving children the same chances every child deserves at Christmas and beyond.
Link to podcast below: