This post is adapted from a recent episode of the Scholar Financial Advising podcast. Listen here for the full discussion.
A common question from families with growing estates is:
“We want to reduce the size of our estate by gifting to our kids each year, but how do we do that without spoiling them?”
It’s a smart and valid concern. Structuring gifts to benefit your children—without undercutting their motivation or values—is one of the more delicate challenges in wealth planning.
The Case for Annual Gifting
From a tax standpoint, gifting is straightforward. In 2025, each individual can gift up to $19,000 per recipient per year without impacting their lifetime estate tax exemption. For a married couple, that’s $38,000 per child annually, completely tax-free.
This is a powerful strategy for reducing the size of your taxable estate over time. If you have three children, a couple could gift $114,000 each year in total, with no tax consequences.
But while the math is simple, the emotional side isn’t. Many parents worry—rightfully so—about what happens when their children start receiving significant wealth, especially if they haven’t earned or prepared for it.
The Real Concern: Readiness and Responsibility
The worry that “they’re not ready yet” often reflects a deeper issue: a lack of financial literacy. In other words, the question isn’t whether to give, but how to prepare your children to be good stewards of what they receive.
This is especially important in the context of generational wealth. There’s a well-known pattern in family business and estate dynamics:
- The first generation builds it
- The second generation grows it
- The third generation blows it
Why? Because the third generation often doesn’t witness the work and discipline it took to create the wealth in the first place. That same risk applies to inherited money. If children or grandchildren receive large gifts without education, experience, or accountability, it can do more harm than good.
Shift the Focus: From Bank to Partner
The goal is to avoid becoming the “family bank.” Instead, think of your gifts as a way to reinforce good behaviors—not just to solve short-term problems. The most effective gifting strategies are gradual, intentional, and tied to values.
Here are a few practical approaches:
1. Start Small with Roth IRA Contributions
Fund a Roth IRA for a child who has earned income. The limit is currently $7,000 per year, and the money grows tax-free for life. This introduces long-term saving and keeps the gift separate from everyday spending.
2. Use Matching Contributions
Offer to match their savings toward a specific goal. For example, if your child wants to buy a car, you might say: “You save $15,000 and I’ll contribute $15,000.” This encourages planning and delayed gratification.
3. Set Expectations with Clear Intentions
If you’re gifting into a brokerage account, have a conversation about how the money should be used. Is it for future investment? For a down payment? For education? Clarity helps align values and avoids confusion later.
4. Tie Gifts to Milestones or Goals
Instead of open-ended cash gifts, consider giving after they hit specific benchmarks—graduating, getting a job, saving a percentage of their own money. This gives the gift context and purpose.
5. Stage Gifting Over Time
For larger gifts or inheritance planning, consider spreading distributions out over years or stages in life. This avoids a sudden windfall and gives them time to mature financially.
The Big Idea: Money Amplifies Behavior
One of the key takeaways from the conversation is this:
Money doesn’t change who someone is—it amplifies who they already are.
If your child has strong financial habits, gifts will likely accelerate their progress. If they struggle with money, a large gift won’t fix that. It will likely magnify the issue.
That’s why it’s so important to pair gifting with ongoing conversations, education, and clear expectations.
Final Thoughts
Gifting is an excellent estate planning strategy, but it’s also a teaching opportunity. Done thoughtfully, it’s a way to invest in your children’s financial maturity while sharing your values and vision.
The goal isn’t just to move assets—it’s to build legacy with intention.
For more insight into gifting strategies and family planning, listen to the full podcast episode here.