More and more these days I am hearing stories of the eldest generation deciding to give monetary gifts to younger generations. People are living longer and generating more wealth into their later years. If you combine this with the fact that getting ahead when you are younger is getting harder, more parents, aunts and uncles, even grandparents are giving a large cash gift to help.
Emotionally this can also be helpful for the older generation. Too often, their money and assets are not passed down until their death. Then, they do not even get to see the positive impact this might have on their children’s lives. Many parents are now opting to give a little of that potential inheritance to their kids before they depart. That way, they get to enjoy their reaction and success.
Another common reason is to help a younger family member at a difficult time. This could be due to a job loss, new baby, or attempting to buy a first home. Most young people have very little cash on hand. Therefore, having an older family member or close friend can be all they need to get that little push ahead.
Given these scenarios, there is one very important consideration. That is of taxes. Monetary gifts can be taxed if the amount is too high. It is therefore critical to research this before you give or accept any money.
Currently, for 2008, the tax laws allow you to give up to $12,000 per person ($24,000 per married couple) to any number of individuals completely tax-free. Any amount over this $12,000 is subject to income taxes, even if it is a gift. It also does not matter your relationship with the person you are giving the money. The amount is the same for family as well as friends.