A Gift Between Generations

Planning Reflection | October 14, 2022

Financial situations are as varied as family situations, and bringing family and finance together reveals a nuanced array of issues. We’ve previously discussed the need to be intentional in spending decisions to accomplish the things you care about the most. In the instance of gifting to adult children, the elements are unique to each specific family’s needs, yet reflect a common desire to care for family and help a multigenerational network thrive personally and financially.

Economic trends also affect the ability of each generation to handle the varied set of adult responsibilities that require financial resources, whether training for a viable career and planning for a family in early adulthood, saving for later life, or recovering from financial setbacks down the road. The last four decades have seen a difficult economic environment in which attaining a cultural ideal of independence and self-sufficiency is giving way to more intergenerational practices. 

To support the initial transition to living independently, many parents provide financial support by continuing to pay certain direct costs they may have paid through high school and even college: cell phone bills, insurance premiums, and therapy costs. That support gives young adults time for a transition to fully supporting their own household, but they may also need to welcome them back at some point.

Boomerang children, a group that has been steadily increasing in number since the 1980s, refers to young adults who return home after living independently. They might move back in for any number of reasons – a job transition, a need to save to pay off debt or save for a down payment on a house, experiencing a divorce, or mental health support.

When children return home or need additional financial support, parents may worry that things aren’t going as expected, by which they mean according to the mental script they retained from their own upbringing. However, there are some benefits for all from the experience of delayed financial independence. Normalizing the process of boomeranging is nudging our cultural values in the direction of supporting the family and community, not just the individual. The opportunity for lengthier communal living can strengthen familial bonds, foster financial security, and create a broader expectation of connectedness.

As we progress through adulthood, we face a mix of accomplishments and setbacks, both personal and professional, that impact our choices. Despite best efforts, midlife disruptions such as unexpected job loss, divorce, a child’s illness, or temporary disability can strike a damaging blow to financial stability. These are moments when a one-time financial gift can be particularly impactful and may come at a moment when the older generation has the financial and emotional bandwidth to jump in with help.

Sometimes a child may ask for help; other times, a parent may offer. In a situation where adult children have been successfully independent, perhaps for decades, it can be very difficult for all to return to a sense of dependency. Support may be very specific. Paying a mortgage during a months-long stretch of unemployment or stepping in with a gift of time to care for children can help at the margins in a way that enables them to move past the difficulty. As a result, there is not only relief to be past the problem but also an enhanced sense of connectedness and support.
 
Whatever the circumstance, everyone benefits from good communication and clear agreements about the purpose and duration of financial support. If adult children become accustomed to ongoing financial support, and it may feel like a personal blow to have parents withdraw that financial contribution once the emergency has passed. For parents, having clarity about how much support they can provide and for how long will dispel any worries about their own financial situation.

Even the tax code recognizes that it is common for families to share financial resources with one another. Estate and gift tax rules allow everyone to make up to $16,000 of gifts annually to any person without needing to pay tax or apply a portion of your lifetime transfer tax exception. In addition, if you are providing housing under your own roof, or paying tuition or medical assistance directly to a school or medical provider, an unlimited amount of this type of support is also exempt from gift tax.

For parents whose financial stability is assured and who want to share their wealth with adult children as early as possible to support the next generation’s life opportunities, the tax impact is rarely the only consideration. They may also want to pass on the benefits of a gift they may have received from their own parents – a house down payment, funding of college accounts for grandchildren, or financing for a post-college certification.

These circumstances also provide an opportunity to effectively share the process of planning with their children. With deliberate attention, you can come to understand your own values and priorities in a way that helps you coach adult children and make offers of financial resources confidently and appropriately. 

Inheritance is another moment in which parents may have the opportunity to share the wealth received from prior generations with their current family. If you are already financially secure, receiving assets from a recently passed family member is an opportunity to make a considered decision about the best use of those assets and multiply the positive impact. Intentions from a deceased loved one may guide you, or you may have your own priorities. Whether and when to share that with adult children or even adult grandchildren can strengthen ties between generations in a way that supports family continuity.

The challenge of supporting a separate household, recovering from midlife financial disruptions, or integrating gifting from wealthy parents into an already independent life – all these circumstances shape who we are and how we knit our families and communities together. They support a continued flow of emotional communication between and among family members, give children an experience of hands-on expression of love and support far beyond childhood, and gratify parents who enjoy having an adult child around helping with rent, making dinner, or providing care in later life.

The gradual trend toward more integrated financial support among generations is welcome. There are many communities in our country that have always valued the benefits of multigenerational living and others that more highly prized independence. Each may have envied the benefits of the other, and if we are facing not only economic but environmental challenges, it may be a blessing to act as if we are all in it together.