A client came to my Manhattan office last month with what he thought was a simple plan. He wanted to give his son, a recent graduate, a significant sum for a down payment on a first apartment. “I’ll just wire the money,” he said. It’s a generous impulse, one I see often. But my first question is always the same: have you considered what happens the day after the money arrives?
A large financial gift is not a transaction—it is an event that changes a family’s trajectory, for better or for worse. The difference lies in the planning. Without a deliberate approach, a well-intentioned gift can trigger tax consequences, create family friction, or even undermine the very person you intend to help. This isn’t about paperwork—it’s about stewardship.
The Gift Tax Is Not What Most People Think
The first conversation we have about a large gift is almost always about tax. Most people have heard of the annual gift tax exclusion, and they worry about writing a large check to the IRS. For 2024, an individual can give up to $18,000 to any other single individual without any tax filings or implications. A married couple can combine their exclusions to give $36,000 to one person.
But what happens when your gift exceeds that amount? This is where the misunderstanding lies. You do not immediately owe tax. Instead, you file a gift tax return (IRS Form 709) to report the excess. That amount is then deducted from your lifetime gift and estate tax exemption—a much larger, unified credit that shields a significant amount of assets from federal estate tax upon your death.
The decision to use a portion of your lifetime exemption now is a strategic one. For some of our clients, making a large gift during their lifetime—to help a child start a business or buy a home—is a powerful way to see their legacy in action. For others, preserving that exemption to protect the entire estate for the next generation is the more prudent path. There is no single right answer, only the one that aligns with your specific goals for your family.
The Structure of the Gift: Control and Contingency
Once we’ve addressed the tax implications, the more important question arises: how should the gift be made? A wire transfer is an outright gift. The money belongs to the recipient, free and clear, with no strings attached. For a financially mature and responsible adult, this can be perfectly appropriate.
But often, a gift of that magnitude requires a more deliberate structure. A trust is not about control for its own sake; it’s about building a framework for success and protection. We might establish a trust for several reasons:
- Asset Protection: Funds held in a properly structured irrevocable trust are generally shielded from the recipient’s future creditors, lawsuits, or a potential divorce. The gift remains in the family, protected for its intended purpose.
- Stewardship for Minors: When gifting to a grandchild or a young adult, a trust is essential. It allows a trustee—someone you appoint—to manage and invest the funds until the beneficiary reaches an age of maturity that you determine. For gifts to minors in New York, we often work within the framework of the Uniform Transfers to Minors Act (UTMA). The custodian of a UTMA account has a fiduciary duty to manage the property for the minor’s benefit, as outlined in statutes like EPTL § 7-6.9. A trust, however, offers far more customization and control than a standard UTMA account.
- Incentivizing Goals: A trust can be structured to distribute funds upon certain milestones—a college graduation, a business launch, or reaching a certain age. It transforms the gift from a simple windfall into a tool for encouraging responsible life choices.
Choosing between an outright gift and a trust is a foundational decision. It requires an honest assessment of the recipient’s circumstances and your ultimate intentions for the wealth you are transferring.
Beyond the Balance Sheet: The Human Element
As an attorney, I handle the legal mechanics. But after decades of practice, I know that the most critical work is understanding the human dynamics. A sudden influx of wealth can be destabilizing. It can disincentivize a young person from building their own career or create resentment among siblings who receive different amounts or at different times.
A deliberate gifting strategy anticipates these challenges. It involves clear communication about the purpose of the gift and the expectations that come with it. It might mean treating children equitably rather than equally, providing for each based on their individual needs and circumstances. For instance, a gift to fund a special needs trust for one child serves a different purpose than a down payment for another.
The goal is to ensure your generosity strengthens your family, rather than introducing new points of conflict. This requires a plan that is not only legally and financially sound but also emotionally intelligent.
A large gift is one of the most significant acts of stewardship you can undertake. It deserves forethought. If you are considering a substantial gift to a family member, the right first step is to define your goals for the money long after it has left your account. We can then architect a legal and financial structure that honors that intent.
