Husband vs. Wife: How Do You Gift Money to Children?

Lori and Marek Fuchs have never fought in their 16 years of marriage—except over money. In this column, Mr. and Mrs. Fuchs, a real-life married couple with three kids (ages 12, 7 and 5), articulate their very different approaches to personal finance.

This round, he says setting aside money for the children's future requires planning now. She says, will the gifts go to waste?

(He also says it is her turn to make dinner…)

Mr. Fuchs: Hey, Honey, what’s for dinner? Also, would you rather save on taxes or raise entitled little twerps? 

Mrs. Fuchs: I’m making dinner?  I could have sworn it was your turn. And that’s quite a choice you set out. What in the world are you talking about? 

Mr. Fuchs: Well, you hear a lot about gifting money to children. 

Mrs. Fuchs: Oh, you mean gifting some of the hundreds and hundreds in personal assets we’ve accumulated? 

Mr. Fuchs: Always with the wisecracks.  Actually, yes, that’s what I’m talking about. From a financial standpoint, it can make sense, at least in certain circumstances. But this is one of those many issues (like life insurance or separate accounts) where the financial and psychological meet.  And sometimes collide.

From a financial perspective, the decision on whether to gift is pretty straightforward: it totally depends. If you are rich and old, you should probably be gifting like there’s no tomorrow…because sometimes there is not.  Your kids are going to get it anyway and why not save estate taxes?  But as William Driscoll, who runs Driscoll Financial in Plymouth, Mass., frames it, most of those with young kids, should probably not—at least directly.  “Generally speaking,” he says, “if a child intends to go to college and has a chance of getting financial aid, putting money in their name is a bad idea.” He does allow that if financial aid is out of reach, it may make sense.    

Mrs. Fuchs: But I have the feeling that you think I’m going to say it is psychologically important to gift money to our children to make them feel loved, but I’m not so sure it is.  I want our kids to feel that they need to be independent and self–reliant.  I also don’t want them to blow money on a Firebird at 18 instead of going to college. Is there any way to raise self-reliant kids who won’t blow money and save on taxes?