26 Jul I want to give money to a relative. What’s the best way to go?

Q. I will be making a gift to a family member who is recently married and now expecting a child. Both husband and wife are about 40 years old and have excellent jobs but they live in a small one-bedroom apartment in another state. They also have student loans. They won’t inherit money from anyone but me based on what I know of their families. What should be their priorities if I gave them, say, $10,000? Should it go to reduce the student loans, or be saved to raise a future child, or help them buy a car or a home?I’m really not sure that a $10,000 gift is meaningful. It seems like a lot of money, but it doesn’t make a dent in what down payments are nowadays. Should I give a larger sum now and adjust my will so in essence I would give them an advance toward an inheritance? Are there other ways I can help them? I’m more than 70 years old.
— Planning

A. It’s very generous of you to think about how you can give his family member a gift or an inheritance.

Whatever you decide, they’re sure to be grateful.

But let’s go over a few things.

You could consider a putting money in a trust that has specific terms, but that’s probably way more complicated than you want, especially for a $10,000 gift.

If you were to write them a check, there really is no way for you to have control for where the money would go, said Matt Rembish, a certified financial planner with OneDigital in Boonton.

For example, he said, if you were to write a check to them for $50,000 and said “This is for a down payment,” there is nothing stopping them from using it to pay down debt or other expenses you may be unaware of.

“If you were to open and fund a 529, you would be the owner of the account and control the investments,” he said. “The child would be the beneficiary and be able to use the funds for college expenses. There are penalties on these types of accounts to incentivize using this money for college expenses only.”

The gift tax exclusion this year is $18,000.

If you were married, you and your spouse would be able to gift $36,000 without any consequences to each individual.

If you go over this amount, it would lower your estate exemption which is $13.61 million, which Rembish said is not an issue for most individuals.

“The estate exemption allows you to give away up to $13.61 million in assets or property over your lifetime and/or as part of your estate,” he said. “For example, if you gift $100,000 to your family member, this is $82,000 over the annual gift tax exclusion and would lower your estate exemption to $13.528 million — again, not an issue for most people, but the estate exemption amount can always change with new legislation.”

Cosigning a mortgage for a family member is not always a good idea, he said.

“This could directly affect your credit score, and if anything were to happen, you would be liable for the loan,” he said.

And lending money at a lower rate of interest can have tax and gift tax implications which may or may not make sense for your situation, he said.

“If you go down this route, limit the loan to an amount you know you can afford, and get a formal contract in writing so all parties know the expectations,” he said. “Lending money to family can potentially damage relationships, especially if they have issues paying you back.”

The easiest thing to do, he said, would be to give a gift with no strings attached.

“You don’t have to worry how your family member spends the funds,” he said. “They determine what the best use of the gift is given their personal situation.”

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This story was originally published in July 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.