Supporting the Next Generation: A Strategic Approach to Multigenerational Gifting

In a recent article, we explored how individuals can effectively offer financial support for aging parents. But when it comes to supporting the younger generation, clients need a different playbook.

For parents, supporting children into adulthood is an increasingly common practice. Recent survey data indicates that nearly half of all young adults regularly receive financial help from their parents¹.  Even by their early 30s, about a third of adults have yet to attain complete financial self-reliance.

Providing multigenerational support can potentially benefit both parents and their children. Parents can appreciate the impact of their wealth on their children’s lives, while children are able to achieve financial goals that may otherwise be out of reach. However, its effectiveness depends on implementing a strategy tailored to a family’s unique circumstances.

In this article, we’ll look at key considerations when it comes to developing a multigenerational support strategy. We’ll also see how families can avoid tension and unintended consequences through communication and planning. Done with care, multigenerational support can be a tool that enables the next generation to kick-start their wealth journey and chart a course toward financial independence.

The Tactics of Giving  

When it comes to providing support, it’s not simply a matter of deciding how much to give – the tactics matter too. The tactics of giving encompass three main decisions: What assets to give, how to give them, and when.

What To Give

In many cases, parental support takes the form of cash transfers made directly to children. This approach is the most straightforward and offers the greatest flexibility. 

An important alternative is gifting assets, such as stocks or real estate. When parents give appreciated assets, this approach can potentially offer tax advantages. Although gifted assets retain the donor’s cost basis, children may be able to sell them for low or no capital gains tax, depending on their income level.

It’s important to be cautious when giving anything that may have sentimental value for the family. Emotionally charged assets can include real estate, artwork, classic cars, heirlooms, or interests in a family business. Doing so can easily complicate and disrupt relationships, meaning that it’s often best to give such assets as part of an organized and thoroughly discussed plan

How To Give

Having decided what assets to give, the next step is transferring them through the appropriate channel. Broadly speaking, there are three main gifting channels: outright gifts, targeted funding, and trusts. The best choice depends on tax considerations and support goals:

• Outright Gifts. Based on the individual gift tax limit of $19,000, a married couple can give up to $38,000 outright to their child tax-free in 2026. Gifts beyond this amount can also be made without an immediate tax bill but will reduce an individual’s lifetime estate tax exemption.

• Targeted Funding. It’s also possible to make specialized gifts aimed at specific needs or goals. For example, parents interested in funding education goals can take advantage of 529 accounts, including an option to front-load 5 years’ worth of annual gifts. Medical expenses can also be paid tax-free if payments are made directly to the provider.  For family members with unique needs, such as significant health challenges or disabilities, there are other specific account types that may be more appropriate.

• Trusts and Controlled Structures. Parents can establish trusts or other legal structures as a conduit for support. These vehicles can allow parents to set conditions on distributions, which can help mitigate general spendthrift concerns or tie support to milestones.

Trusts can be a particularly powerful tool when developing a support strategy and can help ensure assets provide support as intended. In the event of a child’s divorce, for example, assets gifted in trust can help protect those assets from legal claims.

It’s also possible to form a broader team around a trust (including both professionals and family members) to help support beneficiaries in financial decision making. This can be important for families navigating situations that call for ongoing guidance.

When To Give

The last element to consider is gift timing. The most basic timing strategy is giving a lump-sum amount all at once. This may be suitable if assets are being used to fund a major purchase, such as acquiring a home or a business.

Parents can also give recurring gifts over time, which can be appropriate for supporting ongoing lifestyle spending. This strategy allows parents to provide support while ensuring that assets aren’t prematurely exhausted.

Finally, there’s milestone-based funding. This approach involves gifting when specific milestones are achieved, such as graduating from college or earning income above a certain level. Milestone-based funding often pairs well with trust-based strategies.

Balancing Support with Independence

Parents implement support strategies to help their children, whether that be in pursuit of meaningful goals or simply to enjoy a more fulfilling lifestyle. But good intentions don’t always translate to good outcomes. 

In some cases, parental support can risk hindering the development of a child’s financial self-sufficiency. For instance, children may not develop their own earnings potential if parents help subsidize elevated lifestyle spending. Consequently, they may find themselves trapped in a lifestyle they cannot afford to maintain on their own.

There’s no one-size-fits-all strategy to avoid this risk. One approach involves implementing an ‘end date’ to gifting, incentivizing children to establish self-reliance before support runs out. Targeted gifting and milestone-based funding can also play a role. Regardless, active and ongoing communication should be prioritized to ensure that support is helping, not hurting.

Integrating Support With Your Wealth Strategy

If you’re considering offering multigenerational support to your children, it’s important to understand how doing so may impact your own wealth strategy. Support strategies can cause ripple effects across three main areas:

• Estate Planning: Gifting today generally reduces inheritance tomorrow. As a result, a family’s estate planning attorney should be included in any discussion about multigenerational support strategies.

• Retirement Planning: Parents need to ensure that offering support does not unintentionally derail their own retirement plans. Support levels may need to be adjusted as market conditions or spending needs change.

• Asset Allocation: Asset allocation may shift when multigenerational support is implemented. Families might need to hold more liquid assets to ensure funds are available when needed.

Because these variables are interconnected, your strategy should be reviewed regularly as markets and family needs evolve. Ultimately, parents can only offer sustainable support by securing their own financial stability first.

Conclusion: From Strategy to Reality

Multigenerational support has the potential to profoundly benefit both parents and their children. But turning that potential into reality requires careful planning and thoughtful consideration.

As you consider your own multigenerational support strategy, remember that communication is an essential part of this process. That includes communication with your family members, with your advisor, and with your broader financial team.

Should you or your family have any questions about the topics discussed today, we invite you to contact our office to start the conversation.

¹  Pew Research Center, Parents, Young Adult Children and the Transition to Adulthood Link