Many in their 50s and older are thinking about gifting money to their adult children. Many are unsure if they can afford to do so. That’s because the real question they are asking is whether they have saved enough for themselves in retirement.
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An article I read on marketwatch.com really zones in on this thorny question and suggests that many people won’t really know the answer to well into older age.
About 17 percent of wealth transfers occur while the giver is still alive, the story says. People enjoy seeing how their gifts are used to improve their loved ones’ lives. They also realize that if they wait too long to give, their heirs will already be old and into retirement before they get a chance to see any money.
But the story says that givers must consider the costs of long-term care when they are doling out gifts. Seven in 10 people are going to need help one day. And Medicare isn’t going to cover long-term care costs in most cases.
If you have long-term care insurance, you are probably going to be more comfortable giving money away while you are still alive. If you don’t have it, you probably will want to be more conservative in your gifting.
Nursing home costs run at least $10,000 a month in most places and most people who need one are going to be there for a few years. Home health aides, if you plan to stay at home, can run $20 an hour.
Medicaid pays for many people’s nursing home stays but you can’t just give away your money to meet the rigorous low income requirements to be covered by that program. There is a five-year look back period.
As a result, the article recommends you having enough money in the bank to cover at least five years of nursing home care before starting to gift to others. That’s about $600,000.
And don’t give away money thinking your children will give it back in the event you need it, the story warns. There may be many reasons why they can’t or won’t give it back.
Some people get around this issue by giving away possessions, like a beloved family piano, for example, rather than cash.
But the bottom line, the story says, is that you don’t owe them anything once you’ve raised them and educated them.