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In this episode we discuss the essentials of planning for gifting your wealth to future generations or causes you support. We discuss:
When is the right time to start gifting?
How do you handle the family dynamics of gifting?
Can you ensure that gifts are spent wisely?
and many more!
Disclaimer: The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice, the opinions. expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principle, past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor, who can assess your individual financial situation, objectives and risk tolerance.
A transcript of the episode is provided below for increased convenience and accessibility. The audio should be considered the canonical version of the podcast episode. Errors in transcription may occur.
**Kyre**: It’s hard to know any gifting you are doing is actually being used responsibly unless you have helped develop those healthy financial habits in the person over time. Welcome to the scholar financial advising podcast with your hosts, Stephan Shipe and Kyre Lahtinen The information provided in this podcast is for general informational and educational purposes only, and is not intended to constitute financial, investment, or other professional advice. The opinions expressed are those of the hosts and guests and do not necessarily reflect the views of any affiliated organizations. Investing in financial markets involves risk, including the potential loss of principle. past performance is not indicative of future results. Before making any investment decisions, you should consult with a qualified financial advisor who can assess your individual financial situation, objectives, and risk tolerance. TikTok is a phenomenon and I don’t know
**Kyre**: just the the way posts exist on TikTok is just completely different from any other social media and has really developed its own like personality, style delivery method, which um I don’t know, may may not be for everyone.
**Stephan**: I think you had the AI stuff.
**Stephan**: Well, I sent you that chart the other day that show the the share of Google search just collapsing like crazy with AI and TikTok. And TikTok surpris me. I did not realize how big of the search engine it was. And I guess full disclosure there. I have never used TikTok on any of it goes against a lot of the the privacy rules and regulations upset, but um I just don’t see it as a as a source of searching, but I guess that’s the thing. Because I thought it was more random But I guess it’s can be targeted if you’re searching for it in the right way.
**Kyre**: It’s just so interesting the timing of the Department of Justice’s case against Google um to break up their monopoly or to reign in their monopoly power, it is coming at a moment when Google is losing power in the market. Right?
**Kyre**: And Reddit is starting to assert their own dominance in terms of driving search traffic directly there. Like it used to be, Google would drive traffic two sites, and so they depended on gaming the algorithm. But if you can create a reputation for having all of that information yourself, like what Reddit does, and you can push people there so that their search begins on Reddit. Then you don’t need to you don’t need to optimize Google anything anymore at that point if you can create that mind share, which I think Amazon has as well for product searches, even if you don’t buy it from Amazon, a lot of people start
**Stephan**: recommendations I
**Stephan**: use that regularly for book recommendations searching for things.
**Kyre**: Yeah. Product recommendations or they’re using their
**Stephan**: still think that might be the way of thinking like the Reddit scenario is still like Google on Reddit. And they’re using their own data to deal with it, same with Amazon to an extent. I think that’s where AI shape all this
**Kyre**: there’s
**Stephan**: up and there’s no more of this. I search for something and then I have to pick to the results. I don’t want to pick to the results.
**Kyre**: You want to just you Yeah, but isn’t that what?
**Stephan**: I want to search for something. I just wanted to give me the answer.
**Kyre**: Also, I mean, Reddit is pushing that way. I mean, they pulled all of their data behind a I mean, it’s not a paywall, but they prevent bots from crawling their data so that all the data that was used to train all these early versions of these large language models, you know, they leveraged Reddit’s data for free. and now Reddit basically locked out their API access to do web crawlers so that you you now can’t get it so that I mean, they want to charge just phenomenal amounts of money to large language models to get access to their very conversational, question answer type structured data
**Kyre**: that exists on their platform. So is that a risk for a large language model to like not have access to this kind of more up to date data?
**Stephan**: Maybe if it doesn’t have any other sources, but I think it’ eventually they’re going to get access to it. And it’s not going to take long before or before Reddit has the issue of people just stop going there for new questions. right? That’s the other aspect to it is they can put it behind a paywall. The past data’s already gone. They already have all that. So really you’re just looking for real time data, which,
**Kyre**: green
**Stephan**: as a percentage of all past data is ridiculously small, and if the language models are good enough built on all the past data, then do they need the most recent question that’s asked on Reddit related to home renovations? Yeah, but even but even more modern topics. Do they have enough information? I say modern, what more timely topics? Does the LLM have enough information from other data
**Kyre**: no, right?
**Stephan**: sources to answer that question because it knows how people would have answered that question. what? Yeah, I
**Kyre**: I think the models need the constant the constant feed of data, especially to give you, you know, what’s what’s the best camera to buy in 2025 or what’s the
**Stephan**: agree with that part, but does it have to be on Reddit?
**Kyre**: It doesn’t necessarily have to be
**Stephan**: Is Reddit that? Well, that’s is Reddit big enough to say we’re gonna pull our data and that’s going to impact anyone else?
**Kyre**: other sources that are out there.
**Stephan**: I guess it is my point. Like with all the other sources that are out there could, like a mus in XAI right now is a good example, right? It’s doing really well at handling live data
**Kyre**: doing really well.
**Stephan**: because it has access to X and those immediate feeds.
**Kyre**: Yeah.
**Stephan**: Yeah, that
**Kyre**: So I don’t know. It’s um, like downloading and using locally a large language model that was trained previously and hasn’t had the benefit of this constant feeding of data, you can really tell the difference. Even metas models that were released in the summer, they’re just there’s so many things that are relevant to today that they just can’t even get close to general or evergreen type material. Yes, but anything that would rely on more recent information they can’t touch. And is Reddit overestimating their position in the market? You know, maybe.
**Stephan**: seems like that would be my if I had to put a bet on one direction or the other.
**Kyre**: Yeah,
**Stephan**: I think read it overestimates a lot of their abilities.
**Kyre**: because like at this time of year, what what drives traffic? I mean, are people going to read it to look for gifting recommendations for
**Stephan**: Exactly, but even then you go back and most posts on Reddit not most, but many of them are repeat posts they’ve been asked multiple times. If you’ve ever searched on Reddit for a topic, you’ll find a post on that topic every six months or every two years on the exact same stuff. So the question is whether or not if you were to drop all of that,
**Kyre**: circles whether or not if you were because they’re
**Stephan**: and I don’t know if I’d consider those necessarily evergreen, because they’re not, they’re still timely to an extent, but if ninety percent of all the comments and feedback within that question within that thread are evergreen, then as missing the ten could a model today fill in the gap of that 10%? Or or is it really that important? Is that ten percent so important to close the gap of some a large large language panel being that much better? I don’t know.
**Kyre**: it might be mentioning me mentioning looking up gift recommendations on on Reddit. I think leads leads me to my question for this week. So this this time of year is that, you know, it’s obviously very famous for being a a giving time of year. And we run into this a lot with our clients that that people have gifting goals for for the wealth that they’ve accumulated, right? You know, occasionally folks, they want to spend their last dollar on the day they die and leave nothing behind. And and but then we have a lot of clients who are are very interested in establishing a legacy or in gifting or in transferring some of that wealth down to a future generation. What is the what’s the philosophy and maybe we can start first narrow in terms of like just gifting at this time of year and we could move a little bit more broad to what is a what’s a philosophy for for those that have long-run gifting goals.
**Stephan**: a lot to unpack. There’s a major topic as many people know. I mean, there’s a lot of implications because it’s not only a financial decision. It’s really easy to run a model and say, you can gift X every single year, but the actual implications of it and the ability to change someone’s finances and change someone’s life significantly is um a a lot of responsibility there, especially when it’s your kids and you want to be careful. We we know there’s a lot of danger around windfalls and from lottery winds and gifting can be pretty significant. You look at the average gifting or the the gift limit before affecting estate taxes in 2024’s 18,000 per beneficiary per donor, so a married couple is now donating or gifting, not donating $irty six thousand dollars per person, especially kids is typically how it is. If you if you like the in-laws, technically you could, you know, give to your son-in-law or daughter-in- law as well at another thirty, or seventy two thousand dollars a family, fund some college accounts and that starts stacking up. I mean, you could easily gift seventy to $1 hundred thousand dollars a year to to an individual family. And that is major implications. So I say, from a time of year perspective, it works well around the holidays and Christmas because people are usually a little strapped for cash. They they’re buying gifts. They’re traveling. So helping out with some gifting is big, but also from a pure financial theoret personal finance, theoretical perspective is we have deadlines at the end of the year. So if you want to fund a 401K all the way, or you want to fund a Roth Iary technically, you can extend but there’s all these deadlines that exist with funding that if you were to receive a gift, you could hit all those deadlines and actually expand it. That’s why typically if you’re in the position to gift, you’re in this world where you no longer are worried about your ability to pay for your own financial goals? Like can you retire? The answer is yes. That’s why we’re giving away money at this point. So if you’re at the point of giving away money, then you start looking less at your financial goals and the ability for your money to accomplish your retirement, but we start looking at the longevity of your money throughout generations. So if that’s the case, wouldn’t it be fantastic to take seven grand this year from your taxable account, give it to your kids, have them put it in a Roth IRA, and now you’ve pushed money from a taxable account to a Roth account and are now allowing 50 plus years of growth completely tax free because of that transfer. That only compounds the more you do that two different accounts. You do the same thing. They have access to a 401k at work. Now they’re able to max out their 401k and then you give them the difference for them for spending money throughout the year. I think that’s from a philosophical perspective, what people miss is there’s a lot of strategy to that that doesn’t have the same the same impact as just giving here’s a check for eight grand, spend it how you want. And that typically isn’t how it works that I’ve seen. Most of the time it is more strategy associated with it and strategic gifting. It’s what I’d call, but that takes time to build up the financial acumen and literacy in your kids to the point where you feel comfortable and frankly, they’re comfortable receiving $36,000 tax free at once a year and knowing that they’re going to be responsible with it. And there’s a lot of cool strategies around that of avoiding the trap of you becoming the bank as a parent. And that’s a that’s a that’s one that you see regularly. People are gifting in a wrong way or gifting gone bad, right? Where you give a set of money because you’re trying to help kids out or family out, and then the money never ends up going where it’s supposed to go. Or it gets squandered. It gets used in different ways. It ends up in the hands of somebody who didn’t want it to go into because then the kids gifted it somewhere else. Th those are dangerous traps and that takes some takes some time to really build up that trust on both ends and then avoid that process of why I need money. So I can just go ask mom and dad because they’re going to give me money. And that’s it’s really easy to fall into that of we need a new roof. We need a new car. We’ll just go ask mom and dad. They’ll write us a check this year for it. And as opposed to becoming a team with your kids of saying, you want that new car, how about you save up five grand and we’ll match it two for one. And we’ll throw in ten grand for every five grand you put it on the new car because
**Kyre**: Yeah.
**Stephan**: now you’re instilling those those goal setting ideas, right? They they understand. I always even go to the idea of just your kids should see a 1099 statement. There’s so many people who only invest in a 401k. Well, if they’re expected to inherit millions of dollars in the future, let’s build up that mentality, that of what it’s like, even the transaction issue of let them go place the trade, go by the SMP 500 and see what a ten99 is, have to find out what dividends are in their receipt. So there’s a a huge mix. There’s so much unpack with gifting when it comes to the emotional aspect, the transactional aspect, the implications from multiple generations is a it’s a very neat topic.
**Kyre**: So let’s uh let’s maybe take it one bite at a time. So let’s first talk timing. So you mentioned gifting during your life with annual limits that you can you can gift, et cetera. um What are the main factors that would cause somebody to wait until later in retirement or perhaps after they’ve passed to for their heirs to receive their inheritance versus gifting during the lifetime. What are the what are the factors that that would drive that one way or the other?
**Stephan**: Yeah, so if you absolutely needed the money in your accounts
**Kyre**: Yeah, they’re in their
**Stephan**: completely to use for spending, then of course, giving your money away when you may need that money is not ideal. That being said, I think there’s a lot more arguments for gifting while you’re alive, for many reasons from the education reason, uh for just the the fact of your kids being able to enjoy some of the money opposed to waiting because the the inheritance that happens usually happens at the least helpful time. Most people inherit in their peak accumulation years, their o almost retired when they inherit. So they’ve already saved up all their retirement.
**Kyre**: 40s or 50s or
**Stephan**: Yeah. Yeah, exactly. Yeah, they they’re done, right? I mean, they they’ve saved up they’re they’re looking at their own. We’re building their retirement plans. I mean, we’re looking at whether they can retire next year and then they receive an inheritance. That’s a that’s a tough one because now you’re you’ve already kind of you’ve immediately overssaved because now you have an inheritance on top of it and you you don’t want to not save and bank on inheritance for your ability to retire. So it really does put people in a weird situation. Now, that’s completely understandable if the person doing the giving needs the money. If they need the money for their own finances, absolutely. I do not recommend gifting, but I think there is a there’s a lot of great things about gifting throughout your life opposed to waiting for this windfall. I mean, what what do you normally see?
**Kyre**: Yeah, I mean I think that that’s right in line. If you need the money and you know, depending upon the individual what your probability of success of meeting your financial goals during retirement, the comfort level you have at different thresholds will kind of depend on you know, like do you have enough? But if you if you feel like that there’s a risk, then, you know, delaying your gifting is is a wise decision. But I’m I’m totally on board with gifting earlier for a lot of reasons. One, you get to experience the joy that happens in in the life of the person receiving the gift, right? Perhaps it’s a education for a grandchild or perhaps it’s a a new vehicle or a roof on a house when when your kids might not otherwise be able to afford it or would have other otherwise delayed it or it’s a family vacation that you’re you take the whole family out, you know, you go to Europe and you visit some of your favorite spots and and those kinds of things build memories. They establish they establish a lot of those patterns, but to your point as well of you can build habits through your gifting in terms of retirement savings. So I will gift to you if you fund your IRA or your 401k, then I will gift you a dollar for dollar or if you could do a two for one match, whatever you could do a you could do a different system. and you can start to instill those habits. You have to be really careful um that that any gifting ultimately is fungible, right? So if you gift and it is used in a way other than how you would have you would have wanted, um there’s not really much we can do about that, but if you gift over time, you can help start to build
**Kyre**: those habits or at least see where the problem edges are. It’s like if you if you give to a child and they’ve and yes, I’ve I funded my IRA
**Stephan**: verif
**Kyre**: But they’re willing to take the penalty on it because they’re like, oh yeah, that was just extra money. I’ll fund it. I can show you that I funded it and I can now withdraw that. I’ll take the penalty. I don’t care because it’s really just extra money that that I was given. There are lots of ways that these kinds of things can go south, even with the best protections in place. But, you know, if you get to year two on your gifting
**Stephan**: s all your one’s the risk. risk drops significantly.
**Kyre**: Exactly. And that’s why I’m a big fan of gifting over time as well, because you can see how the gift has been handled. And if there’s if there’s some concerns, you can begin to address them, or you can alter your gifting strategy. Now, this isn’t exactly the same topic area, although it’s related, um but building a trust and determining how distributions are made to beneficiaries, you know, I’ve seen where somebody constructed their trust so that it would pay out dollar for dollar in W2 income that their child had. And and, you know, the concern was that the child had a substance abuse issue, unfortunately, but the the parent did not want to leave them out in the cold, but did not want to fund the addiction either, so they figured that they would be clean enough if they could hold down a W2 job because those types of employers may do drug testing, they and they will fire you if you are late or you know, not, I guess, maintaining a certain standard. And, you know, that was kind of an interesting way to manage this risk of squandering the funds is the person’s life in a condition to accept them. So gifting through time can help establish some of that so you know, like, you know, if the estate is large enough, you won’t be able to gift inside inside the gifting limits throughout your life to um so you might just have that question as well. How much should I care on the back end when the larger lump sum does get transferred and that gifting can establish that pattern so you can learn a little bit more about how the windfall would be
**Stephan**: Yeah, I think that’s a a key point that there’s still going to be a windfall, and that if you’re in a position to gift, you are likely you will have an estate worth multiples of the time of the gift of the amount of the gift on an annual basis. So it’s no matter what kind of gifting you’re doing, you’re really all it is is training for a windfall is what you’re trying to do. You’re putting your kids through training for the windfall that they’re about to receive, but it goes into charities as well. your your point about seeing the benefit of the chari the giving early is also, it’s a some people look, I’ve heard people like, well, that’s kind of selfish. I’m, I don’t it self-ledge your money, right? It’s if you you know, you don’t have to wait until you’re dead for someone to enjoy the the benefits of it. There was a a famous story. One of the universities I was affiliated with in the past had this major issue. I don’t even know if it was a necessary an issue. Someone had left they were a librarian and had left their entire estate or a large portion of the estate to the university. And once they did that, the university could spend however they wanted, and so the university went with the librarian’s money and purchased a brand new scoreboard for the football team, and it caused a ridiculous amount of outrage because it was there was a lot of that’s not what it would have wanted. That’s not where they wanted the money to go and they had the person had never been to football games supposedly. Like there is no connection whatsoever. but it’s a good it’s a good exercise of when you’re gone and that estate’s gone. Maybe you don’t care where it goes, but if you have any amount of caring, if that story frustrates you at all, then you should really consider front loading some of that gifting or being
**Kyre**: Yeah, some of them
**Stephan**: a little bit more tailored to how you’re going to see it because it would be nice to we see it in universities all the time. Somebody gets an endowed chair position or you know, they’ve donated money as part of their estate to the university and that funds a professorship. It’s so much better if you can meet the person who you’re funding, right? The the research that you’re funding or the the grants that you’re providing or scholarships that you’re giving. It’s like what’s better giving a scholarship and the person never gets to meet them? Or would you like to see the people you’re able to fund and follow them and think there? I think that’s fantastic. I think there’s a lot more fulfillment there.
**Kyre**: some of the most gratifying events as a professor
**Stephan**: Some of the most gratifying of them.
**Kyre**: are attending scholarship dinners, where we seat the recipient with the family responsible for that scholarship or the business or whoever is funding it, and it and when it’s the actual person rather than maybe a generation two, who’s like, you know, mom gave to the university. So the kids after she passes, they go to the scholarship gener just to see. I mean, that’s gratifying, too. But for those donors themselves to be there and to really see the difference that’s making in the people who are receiving that in their in their lives, you know, I think it makes the gifting that much more worthwhile to see the effect.
**Stephan**: Yeah, it’s it’s huge.
**Kyre**: everyone
**Stephan**: I mean, that’s where we talk about the timing of it. It’s it’s the time of year forgiving. right to bring all that together, right? And you start to see all that and gifting kind of fits naturally with kind of the end of the year, making plans for the new year, everything there. Now, I do have I’ll a question on you related to this one is one issue is always family dynamics. Everyone’s got we don’t even have to go into stories because everyone has stories of
**Kyre**: listening to this right now pop up in their mind
**Stephan**: immediate, right?
**Kyre**: it’s really challenging
**Stephan**: The volume was just turned up of just getting into all of the the drama of family dynamics around gifting. How should a and there’s no writer necessary perfect answer to this, but let’s say I’m gifting and I have multiple children and they’re all at varying stages of financial acumen. We have some that are really good with money. You have no you write them a $36,000 check tomorrow. They’re going to take care of it and it’s not going to be an issue. and then you have somewhere you’re nervous about giving the money. You’re nervous about what that could mean for them. Obviously as apparently you’re concerned that that’s going to because negative issues or worse relationship issues with children. And we we see it every day that we’re dealing with. How how do you handle those situations? What do you think about when you’re having those conversations? What are things that people should be thinking about? really challenging.
**Kyre**: because what you end up with a lot of times is an unequal distribution of your wealth to your heirs based off of their capacity to handle it. And that is that is very challenging. But you have to, I think and this goes with a lot of things in life, you have to establish expectations. And if people know what the expectations are, then it doesn’t eliminate all strife and struggle and strain, but knowing expectations clearly up front can remove some of that some of that damage or or difficulty from the funds being distributed differently. And so if if the children know, hey, if you are, you know, fulfilling this, that or the other, then then this will be your portion. I think that can solve it somewhat, um, you know, going back to this example I just shared, you know, that in that individual who tied distributions to to their son based off their W-2 income, their daughter, they did not. She was successful and and well accomplished and, you know, just received a fixed amount out of the trust every year of flat payment. And so hers over time very quickly exceeded what the brother was receiving um so I think we have to to some degree be comfortable with that uneven distribution if we have significant concerns about how those funds are going to be received, used or the impact that it would have on on their life.
**Stephan**: Money is an amplifier, is what it comes down to. If you have if someone has good money habits and they’re given money, it typically just amplifies those habits that it’s going to be treated well. If someone doesn’t have good money habits, giving them money will not solve that problem. It’s only going to amplify that problem. If they if they’re already in credit card debt, they’re having a hard time giving them a check to pay off the credit card debt is likely not going to eliminate their credit card debt into the future. They will just come up with more credit card debt. And that’s not always the case, I man, it’s not a great generalization, but it is regularly the case that money amplifies behavior. And that is especially true with gifting, which I think brings in that which makes it difficult because you’re providing the amplification. And that’s the that becomes messy because you know that when you hand over, maybe it’s not quantified that way, but implicitly that’s what people are feeling.
**Kyre**: Right exactly.
**Stephan**: It’s like I know I’m going to amplify something with this money. And I hope that I’m amplifying good things and because you don’t want to be amplifying the bad. And that’s where you you hear the horror stories of people who are living off trust funds and behavior and everything else that goes together. It’s because money has amplified the behavior. It has nothing to do with changing behavior. It’s just going to create more of it.
**Kyre**: And and for this, you know, we see that people are very comfortable in terms of timeying gifts to acceptable uses, you know, education or health care expenses or maybe something related to their housing. So basic basic kind of fundamental needs. But that really can only take you so far because dollars are fungible. And therefore, any amount, if you’re covering their housing expenses because you’re like, I’m comfortable doing that, then any money they earn from their employment, they could spend on anything else. So your gifting frees up space in their budget to to spend on anything that they would like. And we might think like, oh, no, well, I won’t give you know, I’ll give them a car and it’s going to be titled in my name. Therefore they don’t, but they’re receiving the economic benefit of that vehicle, so they don’t have to have a car payment. They don’t have to own their own car. So it still frees up resources. like, well, I’ll I’ll own the townhouse that they live in and well, now they don’t have to pay rent.
**Stephan**: Well now they don’t have to pay rent so they can spend that on anything they want.
**Kyre**: Exactly. So there are things that we can do to to structure, but, you know, there’s a lot of really interesting economic research on whether or not entitlement programs should be administered simply as cash distributions to the recipients rather than as in kind distributions. So changing it from like housing vouchers and food stamps to just literally giving cash payments to the individuals because the idea really is that it if you give them cash payments and they will use it on what they deem the most important to their to their lives. And if you’ve given them you know, housing vouchers or food stamps, that’s fungible so that any, it frees up their other budget to already spend the way that they want. So you’re not actually, you know, insuring responsible usage of funds And there’s there’s some really interesting research in the fallout from the pandemic with the stimulus checks on what people in the the worst financial situations used those stimulus checks for, they predominantly used them for housing, food, childcare, and then a small amount of debt servicing. So they they were using, now, people with higher incomes who didn’t need the distributions,
**Stephan**: New car inflation.
**Kyre**: new car. I just sat through a presentation yesterday where they were talking about how how Gucci and and other, I guess, luxury brands all experienced surges during during this stimulus period. You know, that’s a whole nother that’s a whole another can. So I guess the the point of this is saying that it’s it’s hard to verify that. Any gifting that you’re doing is actually being used responsibly unless you have helped develop those healthy financial habits in the person over time, uh which is hard as challenging.
**Stephan**: Yeah, it’s a lifelong process. And that’s why gifting early matters, right? You want to have as much time as possible to instill those behaviors and teach as much as you can. Which would be a good question to wrap up here at what age should you start gifting?
**Kyre**: s a really great question. I mean, I think as long as somebody’s a minor in your household, I think they just assume that you’re going to take care of their life. So I think gifting to minors as a parent is harder. Maybe grandparentparents can gift to grandchildren and there’s a little bit psychological difference there. So I would I would tend to say not until adulthood, um, would you start gifting? I’m a big fan of of incentivizing children to establish the habit of contributing to IRAs 401Ks, and if there’s some amount of of gifting that you can do at that very those very early stages in their career so they can begin to see the benefit of doing that, um that I’m a I’m a big fan of and those wouldn’t have to be your maxifting amounts at that point. They could be small amounts to help establish habits.
**Stephan**: Exactly.
**Kyre**: Yeah,
**Stephan**: You match the internship money they got right into a Roth IRH so they can still spend their internship money using the fungibility of the money. They can still spend it and enjoy it and then they also were able to fund the Roth IRA for.
**Kyre**: because they because they fund the Roth from their earnings because you have to have earned income right, to contribute to a Roth or to a traditional Iray. But then they use your gift as though it were. So it’s all fungible in
**Stephan**: Yeah, then you’re gradually building that up through years until they are getting hopefully you’re at the point where you’re then handing them a thirty six thousand dollar check and you just know that it’s going to be going to what it needs to be going to.
**Kyre**: Yeah. So how about you? What would your what would your time be?
**Stephan**: I I think that’s uh right. It would be at eighteen to start gifting really no other reason than uh the messiness of getting into utmas and everything. Now, if you’re really trying to get some gifting out there, then maybe the kids have their own investment accounts beforehand. I think pre-18 is a prime time to start instilling the basic budgeting principles of earning money, how much you should spend, savings accounts, maybe dabbling a little bit in stock market assets. So I think I would fund in UGM, probably in high school, but it’s not going to be hundreds of thousands of dollars, right? But it’s, you know, five, ten grand, let them buy some stocks. It’s probably the one time I’d allowed them to break the rule of not buying an index fund, of letting them own some individual stocks to get that to get the feeling of some interest in the markets to buy and sell what’s a market order, limit orders that way by eighteen, when they do have a Roth account and you’re funding it with
**Kyre**: what
**Stephan**: earnings. I guess the technically could have it before then if they were working, then you have the regular gifting, but
**Kyre**: what’s the risk on Uma account if you funded it with hundreds of thousands of dollars?
**Stephan**: it’s theirs at eight, so you better really hope that
**Kyre**: I’m not a big fan of those accounts in general.
**Stephan**: uh well, I guess it depends on the state, but you better really hope that they’re ready for that money when it hits. or they’re going to be the most popular person in college.
**Kyre**: I’m not saying there’s not a place in certain individu’s financial situations for them, because there certainly is, but yeah, that to me presents just a large enough risk. um Does not make me a huge fan.
**Stephan**: The pre- should be centered on the budgeting principles at saving in general introduction to the stock market, introduction to financial markets in general, through high school, generally that that interest will start to increase. So reading basic investment books, starting there, and then 18 is when some significant quotes around significant of, you know, five to ten grand is starting to hit a retirement account for them. So that way through college, they have some some built up. They’re walking away to college with the in some Roth accounts. Now they already know how they’re going to fund their 401k and you could start gettingting there. So um the UGmas, as you mentioned has plenty of risks of the utmost because you can’t touch the money it’s theirs, right? You you’ve given that money over to them. It is now their money and ideally they use it for college, but that that also can have, which could be a whole their conversation of fast and implications and financial aidput implications because the government’s going to assume that they’ll spend every dollar in themselves first.
**Kyre**: And we didn’t really talk through the individual vehicles that can be used for gifting, um did mention the the gift limit, uh, but you could use five twenty9s to gift utmas or ugmas to gift, um again, asterisks on that. you could use uh charitable remainder trusts of options out there in terms of vehicles. But to get to that point where you’re selecting the vehicle of how the gifting needs to happen, you really have to have thought through a lot of these things that we’ve talked about today of what’s my goal in gifting? When do I want to start gifting and and how do I want to time that through the years? And then that ultimately leads to the choice of the right kind of vehicle for that gifting.
**Stephan**: Exactly. The vehicle exists. That’s that’s not that’s a very much a secondary concern. Like what what is the role you would like money to play in the lives of others or other organizations? And and I think you’ stopped it just at others, it’s the role that you’re wanting it to play with others. And then with that, there’s either individual donations that you could give or there are organization structured for that. And if there’s not an organization, then you create your own organization and create a foundation that does it. So there’s the vehicles are there. The government definitely incentivizes gifting, two charities and two individuals. So that’s not usually a concern. It’s going to be the that initial role, which is a big that’s a big question that we can leave people to answer. It’s like what role do you want your money to play now and into the future and take it from there.