Gifting to Your Children While You're Alive: What to Consider & How to Minimize Taxes
If you have children and would prefer to help them financially now — rather than waiting until you’re gone — this guide is for you.
More parents today are choosing to gift assets during their lifetime. With strong market performance, rising real estate values, and growing estate sizes, many families are in a position to transfer wealth earlier. Some estimates suggest that over $124 trillion will change hands by 2048.
But before writing a large check or transferring appreciated assets, there are important financial and tax considerations.
Let’s walk through them.
1. Start With Your Own Financial Security
Before making any gift, the first question is simple:
Can you afford it?
You’ve already raised, supported, and educated your children. Your first responsibility is ensuring your own long-term financial independence.
Key questions to review with your financial advisor:
Will this gift impact your retirement income sustainability?
Are you drawing from assets needed for future living expenses?
How does this affect required minimum distributions (RMDs)?
Have you accounted for long-term care expenses?
If you do not have long-term care insurance and plan to self-insure, gifting too aggressively could reduce your flexibility later.
Helping your children is admirable — but not at the expense of your own stability.
Prefer to learn audibly? Listen to this week’s episode where I cover: Gifting to Your Children While You're Alive: What to Consider & How to Minimize Taxes
2. Clarify the Purpose of the Gift
Understanding why you are gifting helps determine how you should structure it.
Common reasons include:
• Helping With a Home Purchase
Rising home prices and higher interest rates have made it harder for younger buyers. Many parents are helping with down payments.
• Paying for Education
Graduate school, professional degrees, or career transitions can be expensive.
• Starting a Business
If helping fund a business, request a written business plan. Many businesses fail, so proceed thoughtfully.
• Paying Off Debt
Student loans or high-interest debt relief can significantly improve your child’s financial trajectory.
• Supporting Lifestyle or Grandchildren
Private school tuition, childcare, or enrichment programs are common gifting motivations.
One-time gifts are easier to evaluate. Ongoing support requires more detailed planning.
3. Consider Family Fairness
If you have multiple children, gifting can create emotional complexity.
Even if one child “needs it more,” siblings may view situations differently. Transparency and documentation can help reduce conflict.
Fair does not always mean equal — but it should be intentional.
4. Avoid Creating Financial Dependence
You don’t want to unintentionally reduce your child’s motivation to grow their own earning power.
One-time assistance (home purchase, debt payoff) is typically less problematic than ongoing support that replaces personal responsibility.
Ask yourself:
Does this encourage independence?
Or does it create reliance?
5. Understand the Gift Tax Rules (2026)
Annual Gift Exclusion
$19,000 per person, per recipient (2026)
$38,000 per child for a married couple
You can gift this amount annually without filing a gift tax return.
Lifetime Exemption
The federal lifetime gift and estate tax exemption is currently $15 million per individual.
If you gift more than $19,000 to a person in a year:
You file a gift tax return
The excess reduces your lifetime exemption
Example:
If you gift $1 million over your lifetime above the annual exclusions, your estate tax exemption is reduced by $1 million.
The current federal estate tax rate on amounts above the exemption is 40%.
For most families, this may never be an issue — but tax law can change.
6. Choosing the Right Assets to Gift
Not all assets are equal from a tax perspective.
Step-Up in Basis Matters
When someone inherits an asset at death, they receive a step-up in cost basis to the market value on the date of death.
When you gift an asset during life, the recipient receives your original cost basis.
This distinction can dramatically impact taxes.
Asset Gifting Order (Least to Most Tax Impact)
1. Cash
No income tax impact when gifting cash.
2. Taxable Brokerage Assets
If you gift appreciated stock, your child inherits your cost basis.
Example:
If you bought stock for $5,000 and it’s now worth $20,000, your child will owe capital gains tax on the $15,000 gain when sold.
In some cases, if your child is in a lower tax bracket, this may be advantageous.
3. Roth IRA
You can withdraw contributions (and earnings if qualified) tax-free.
However, Roth IRAs grow tax-free and pass to heirs tax-free. In many cases, allowing continued compounding may be more beneficial than gifting now.
4. Traditional IRA or 401(k)
Distributions are taxable as ordinary income.
Because non-spouse beneficiaries must generally empty inherited IRAs within 10 years, sometimes it may make sense for parents in lower tax brackets to withdraw funds and gift cash instead.
But doing so increases current taxable income and could:
Raise Medicare premiums (IRMAA)
Increase overall tax liability
Careful modeling is required.
Gifting Real Estate: Special Considerations
If you gift a home purchased for $50,000 that is now worth $600,000, your child inherits the $50,000 cost basis.
If they sell for $700,000:
Taxable gain = $650,000
If they live in the home for 2 of the last 5 years as a primary residence, they may exclude:
$250,000 (single)
$500,000 (married)
If they sell sooner, the tax bill could be substantial.
If instead the home is inherited at death, they receive a full step-up in basis — often eliminating most capital gains tax.
Medicaid & the 5-Year Lookback Rule
If long-term care planning is a concern:
Medicaid reviews transfers made within 5 years
Gifting assets within that window can create eligibility penalties
In some cases, transferring a home to an irrevocable trust and surviving 5 years can protect the asset.
This requires legal guidance.
Final Thoughts
Lifetime gifting can be powerful. It allows you to:
See your children benefit
Reduce estate size
Provide meaningful financial support
But it must be coordinated with:
Retirement income planning
Long-term care strategy
Tax planning
Estate planning
Before making large transfers, involve your financial advisor and CPA.
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Helping your children financially can be incredibly rewarding — just make sure you do it in a way that protects both your future and theirs.
If you have a question you’d like addressed on a future episode, visit retirewithryan.com and click Ask a Question.
Have a great week—and I’ll talk to you next Tuesday.
Written by Ryan Morrissey CFP®, CLU®, CHFC®, CMFC
Founder & Principal Advisor of Morrissey Wealth Management
Host of the Retire with Ryan Podcast