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Parental giving paradoxes: avoid giving kids too much, too soon

Many parents give deeply of time and treasure to cherished children. To a great extent, such gifts are a natural expression love. 

But it is possible, at any age, to give too freely. With younger children, giving too freely may make them selfish and less able to take responsibility for their own lives.

When parents reach the senior years, the need to be strategic in giving gifts remains a reality. If parents give away too many of their assets to their children, the parents could be ill-prepared to face financial challenges of their own. Those challenges can easily occur, for example, when a serious illness strikes.

In this post, then, let's look at one particular area in which parents need to be careful with their gift-giving: the family homestead.

Parents may think they are doing their children a favor by giving them the house while the parents are still living. They may think they are saving on inheritance or estate taxes.

In practice, however, making that type of gift may not be the right choice. There are multiple reasons for this.

For one thing, transferring ownership of the family home through a gift rather than through the will may not necessarily save all that much on estate or inheritance taxes. Of course, much depends on the facts of a particular family's situation. But it should not simply be assumed that making a gift during the parents' lifetime will save on taxes.

There is also the fact that, by giving away too many assets too soon, parents can undercut their own financial security. If that happens, and the parent incurs large medical costs, parents could end up turning to the very children whom they were trying to help.

Source: Newsday, "Inheritance tax shouldn't compel parents to gift children a home," Tim Grant (Pittsburgh Post-Gazette), Oct. 27, 2013

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