Gifting Money—The Not-So-Simple Methods for Families

Gifting isn’t just “write a check and walk away.” There’s always some IRS catch or the risk of an April surprise tax bill. Cash gifts seem easy, but then you’re juggling cost basis, trusts, and whatever your cousin read on Reddit.

Cash Gifts and Direct Transfers: Actually Tricky

First thing my accountant ever yelled at me: “Don’t Venmo your niece $20,000 unless you want IRS paperwork.” In 2025, I can give anyone up to $18,000 per year, or $36,000 if my spouse and I “split” it. Go over? Paperwork. Lifetime exemption gets chipped away.

Spreadsheets don’t show how awkward holidays get. Grandma thinks cash is impersonal. Kids waste it on hypebeast junk. But direct transfers? They’re fast. No weird accounts, no co-signers. For big families, the annual exclusion multiplies—one friend gave five grand to three kids and two grandkids every December. No IRS drama.

Still, document everything—bank records, notes in the memo line. Otherwise, some cousin will claim “it was a loan” during probate. Fidelity’s calculator helps, but honestly, skip cash apps for big gifts. Banks are easier when tax season rolls around.

Appreciated Assets and Capital Gains

One time I handed my nephew some Apple stock. Thought I was being slick. Turns out, he gets my original cost basis, so if he ever sells, he’s on the hook for a bigger capital gain. Yeah, “appreciate the asset”—appreciate the headache. Sure, transferring stocks, mutual funds, or real estate can be smart, especially if your kid’s in a lower tax bracket, but honestly, half the time people just want cash anyway.

Here’s the rub: if you gift appreciated assets, the recipient pays tax on your original price, not what it’s worth now. That’s great if their income’s lower, but if you’re in a family where everyone argues over paperwork, expect drama. Wildest thing I’ve seen? Retirees dumping rental property on college-bound grandkids. Would I do that? No way. But apparently, “basis jumps” are the holy grail for some financial planners.

Morgan Stanley’s estate team flagged this: don’t get fancy with thinly traded stocks, and always write down the market value at the time of the gift for tax forms. If the asset tanks after you gift it, well, no do-overs. Sorry.

Gifting Through Trusts

Trusts. Ugh. Every time someone says “future security,” my eyes glaze over. Revocable, irrevocable—why do lawyers always make it sound more complicated than it needs to be? Families love to get creative: 529 plans, ILITs (irrevocable life insurance trusts), spendthrift trusts that your uncle’s attorney swears by. Sometimes it actually works—less fighting over control, more strategic moves.

Trusts let you shelter bigger gifts, dodge probate, and get weirdly specific about who gets what and when. Otherwise, you risk the classic “25-year-old blows inheritance on NFTs” scenario. I’ve seen trust docs that drip out money over time, block ex-spouses, or even set up weird incentives for college. Supposedly, this can lower estate taxes if you do it right. Gilbert Wealth calls it “spreading gifts over time in a tax-efficient manner,” which, okay, after my last meeting, seems legit (here).

But then you get hit with legal bills, trust tax filings, and endless explanations to younger family members who just want their money now. Sometimes, giving up control is better than watching cash vanish instantly, but good luck explaining that over turkey and mashed potatoes.

Trusts and Family Banks: Building Generational Wealth

Why does nobody ever talk about family banks at reunions? Private wealth managers treat them like some secret handshake, but regular folks just shrug. Everyone’s obsessed with quick wins, but honestly, I care more about what actually lasts.

Establishing a Family Bank

I started updating a spreadsheet and suddenly found myself deep-diving into “family bank” strategies. Not Monopoly money—real structures. It’s not a legit bank, obviously, but it acts like a family loan office: intra-family loans, pooled investments, helping a niece launch her business for less interest than any bank would ever offer. And with maybe less paperwork, if you’re lucky.

My accountant (way too practical for her own good) says you can write up rules for interest rates, repayment, approvals—like a family constitution, but about money. The Rockefellers did this, apparently. If you pool assets, you get more buying power, can protect investments, and maybe avoid fights. Imagine using a family bank’s revolving loan setup to help grandkids buy houses or start companies.

But if one person screws up, it’s a mess. Suddenly Uncle Jim’s “brilliant” business plan risks everyone’s money. You need real rules, a loan committee, maybe even quarterly reports. Still, if you’re disciplined, it beats the annual “can I borrow $5,000?” drama at Thanksgiving. If you’re curious, here’s a solid explainer on family bank setups.

Irrevocable Trusts for Security

Irrevocable trusts sound terrifying, don’t they? Like, why would anyone lock up their money forever? But apparently, rich people love them. Unlike revocable trusts (which you can change like your Netflix password), irrevocable trusts are set in stone—unless you want a court fight. So why bother? Protection, mostly.

Lawyers, creditors, even the IRS—none of them can easily get at assets inside an irrevocable trust. You basically give up ownership, so estate taxes drop, lawsuits hit a brick wall, and creditors get nothing. Here’s a breakdown if you want to get nerdy. The cool part is, you can set rules: drip money out over time, block kids from blowing it, even tie payouts to graduation or staying out of jail (not kidding).

But the fees, man. Trustees, accountants, audits—it adds up. Honestly, it’s more like insurance than an investment. Try to keep everyone happy and you’ll just end up paying more lawyers. My cousin tried a “DIY trust” once and landed in probate court. Don’t do that.

Wealth Transfer Strategies

Wealth transfer is never just “here, take it, congrats.” There’s always a catch: taxes, titling, IRS rules, whatever. I keep telling people to look at annual exclusion gifts, installment sales of family businesses, and grantor retained annuity trusts. Not exactly thrilling, but it works.

Setting up transfers with family banks and irrevocable trusts smooths out taxes and gets assets to the next generation with less drama. Here’s a deeper dive if you’re bored. Using estate and gift tax exemptions before Congress changes the rules again? Most people ignore it and regret it later.

I’ve lost track of how many clients forgot to update their plan after a new baby, divorce, or moving states. The mistakes pile up. Regular reviews, family meetings, and way more paperwork than you’d ever expect—none of it’s fun, but it beats the alternative. Sitting down with a lawyer is still about as entertaining as a root canal, though.