If you are feeling particularly generous toward your family members this year, you may decide to give them money gifts for the holidays.

For wealthy families, giving money isn't just welcome; it is a way to transfer wealth to your adult children or grandchildren while avoiding estate taxes. Plus, if they use it responsibly, you may take pleasure in seeing them enjoy it.

Follow these steps to make sure that you understand both the tax and financial planning implications of such a gesture.

More on Financial Gift Giving

Run the numbers with an adviser. Before you start giving away your cash, spend some time with your financial planner to make sure that you can do it while still meeting any short- or long-term money goals you may have. Some red flags about giving money gifts: You’re at or near retirement and you have debt, you don’t have a liquid emergency fund, or you haven’t figured out how you’ll pay for long-term care.

“We advise that you make sure to plan for yourself first, and then, within that structure, if you can help family members, that’s great,” says Ben Barzideh, a wealth adviser at Piershale Financial Group, a financial planning firm in Crystal Lake, Ill.

If you’re not able to make large money gifts now, put your extra cash toward your personal goals and work on creating an estate plan that will make sure that your loved ones receive any assets that remain after you’ve passed away.


Visit Consumer Reports’ 2018 Holiday Gift Guide for updates on deals, expert product reviews, insider tips on shopping, and much more.

Understand the tax rules. You can give away up to $15,000 per person per year without either you or the recipient owing taxes on it. That means that you can give up to $30,000 to a couple, and you and your spouse can give that couple a total of $60,000. If you give more than that, you have to file a federal gift tax return.

For the vast majority of people, giving a gift of more than $15,000 will require some paperwork at tax time, but won’t actually result in owing additional taxes. That's because the excess amount is counted against your lifetime exclusion, which is currently $11.2 million per individual.

Some states have stricter rules around gift taxes, so check with your financial adviser to make sure your gift won’t trigger additional state taxes.

Consider Options Other Than a Check

While it may be easiest to simply write a large check to your relative, there are other options that might be more efficient, especially if you want your money gift to be spent in a specific way:

Direct payments: If you’re hoping the gift recipient will use the money to pay for medical expenses or tuition, you can make the payments directly to the service provider (a hospital or college) without the money counting toward the gift tax limits.

Retirement funds: Help working-age grandchildren get a head start on retirement savings by contributing to (or opening) a Roth IRA. You can put an amount into the account equal to the maximum they can contribute, which this year is the lesser of either $5,500 or the amount of their taxable earnings.

Education savings: If you want the money to be part of a relative’s savings for education, consider opening a 529 account in that person's name, or contributing to one that the parents have already started, says Barzideh. The contributions, which used to be only for college expenses but are now also for kindergarten through high school education, will grow tax-free and can be used tax-free for qualified higher education expenses.

The gift-tax limits are a bit looser for 529 contributions. You can front-load contributions, or give five years' worth of gifts at once, for a total of $70,000 per person or $140,000 per couple, without having to notify the IRS.

The total amount you can contribute to a 529 varies by state, but the limits generally range from $300,000 to $500,000. Some states allow you to take a state income tax deduction for a portion of your 529 contributions, but the rules vary, so check out the details for your state here.