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How to be generous to family and yourself

Sharing with loved ones is the theme of the season. Giving to children and grandchildren is an important financial priority that surfaces around the holidays. Often, we want the next and future generations to have a better and easier life than we’ve had. This can take the form of bequests to heirs, but extended periods of unemployment, volatile incomes and other difficult economic circumstances among younger generations are inspiring numerous older individuals to give assets during their lifetimes, when there is a need and while the giver can see it being enjoyed.

But it’s also important to make sure that your generosity doesn’t jeopardize your own financial security. After all, you’ve planned carefully for your own retirement, and financial gifts you make now can reduce the assets you have to rely on later in life. How can you manage these competing priorities? With open communication and an awareness of tax implications, you may be able to provide the help you want to give in a way that works for the recipient and you.

Assess your situation: Secure your own oxygen mask first before assisting other passengers is an instruction every frequent flyer knows by heart. It also applies to your finances.

You have probably reviewed your retirement strategy since the 2008 market upheavals and are adapting to the realities of investing in a slower-growth world. Have you also reviewed your estate plans in light of these changes? And are you seeing the opportunity for assets that you had earmarked for transfer later to be given today? Your financial adviser can explore how parting with certain assets now might affect your future financial independence, and discuss potential solutions for minimizing the impact of removing those assets from your nest egg now.

It’s critical for individuals to prioritize their own financial security before making gifts to family members. Nobody wants to become a burden to their family, which can happen if you give away the assets you’ve acquired to support yourself.
Keep talking: Communication about money is critical within families. Once you’ve established for yourself the limits on your ability to give, share with your family members the help you’d like to offer, and invite them in turn to talk with you about their needs. Maybe you already know your grandson and his fiancé are saving for a first home. Find out what their shortfall is. Also, is what you’re being asked to support in line with your priorities? If you greatly value education and are committed to developing your granddaughter’s academic talent, you may want to offer to pay tuition directly to her school rather than giving a lump sum of cash to her parents.

If the conversation hasn’t come up yet but you’ve perceived a need or simply want to share wealth during your lifetime, prepare for a longer discussion. It may take a few conversations with family to figure out exactly how they are comfortable being assisted, and how you can appropriately supply that assistance. Pride can play an important role here – on both sides – as well as each party’s sense of independence. Recognize that you may have differing values and consider before you start the conversation how those might influence your decision about giving.

Consider the tax implications: Tax rules are scheduled to change significantly next year. As a result, it’s important to work closely with both your financial adviser and tax professional to make sure any gifts you make don’t trigger an unexpected tax bill. This year, you can give individuals up to $13,000 and married couples can make gifts to individuals of up to $26,000, according to the IRS.

These gifts are called annual exclusion gifts. In addition to the annual exclusion gift, an individual may gift all or a portion of their $5.12 million gift tax exclusion without triggering a federal gift tax.

Non-cash gifts such as securities or real estate could also be given instead of cash. Medical expenses and tuition bills paid directly to the institution or service provider are tax-free, and don’t count toward your annual or gift tax exclusions, the IRS says. With the right planning, you and your team of professionals can develop a gifting strategy that is likely to achieve your desired goals without putting your finances in jeopardy.

Don’t forget that your gifts don’t need to be monetary. When budgets are tight, writing a check to a relative can feel like a sacrifice, so don’t give until it hurts. You may discover through conversations with family that offering your time in the form of regular childcare to working parents is really what’s needed, or lending your time and expertise to helping a grandchild apply for college scholarships. These don’t cost money but can buy your family real peace of mind.
On behalf of my entire family, we wish you the happiest of holidays, Merry Christmas and hope the healthy spirit of the new year will shine on you the entire year.

 • Timothy J. O'Connor is first vice president, investment officer and certified financial planner with Wells Fargo Advisors, 2424 Lake Shore Drive, Woodstock. Email, or visit

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