Tax-Savvy Ways to Leave Money to Your Kids

For many families, it’s essential to provide some kind of a financial safety net to your children. But if you’re not careful, taxation could significantly erode the value of that wealth and even leave you open to hefty estate taxes. But there are some tax-savvy moves you can make to ensure your kids truly benefit financially.So let’s take a closer look.Gift During Your Lifetime Many individuals think of inheritances and other ways to transfer wealth to their children upon death. But it could help to start today.For 2026, you can gift up to $19,000 to any number of individuals, including each of your children, without incurring a taxable gift. And married couples can split gifts up to $38,000. Your children won’t owe taxes on these gifts either.These limits are known as your annual gift tax exclusion. But once you breach those limits, you begin reducing your lifetime gift and estate tax exemption.The lifetime gift and estate tax exemption for 2026 is $15 million or $30 million for married couples. These numbers are adjusted annually for inflation moving forward. But gifting anything above those amounts would be subject to the 40 percent estate tax.Moreover, some financial experts say it’s best to give gifts to your children during your lifetime so that you can see them enjoy it today. And your adult children won’t owe taxes on it. Plus, those assets could grow throughout their lifetime.But we’re talking about exceptionally large amounts of money. So you may also want to take into account how they would manage those assets.Establish an Irrevocable TrustThose with exceptionally large estates, and children who may not be too financially responsible, may be interested in irrevocable trusts.A trust is a legal entity which can absorb assets like cash, stocks, real estate, and more. And you can name your children as the beneficiaries. Additionally, you can set rules such as having your child graduate college and have a job before they can get their share.And although you permanently lose ownership of the assets you transfer to the trust, they essentially leave your estate and as a result may steer you away from estate taxes.Open a 529 College Savings Plan for Your Child The costs of higher education continue to skyrocket. But opening a 529 college savings plan on behalf of your child as early as possible can be a tax-savvy way to help cut the costs of college.Anyone can contribute to these accounts, and earnings grow federal income tax-deferred. Plus, withdrawals are tax-free as long as distributions are used to cover qualified higher education expenses like tuition, fees, and materials needed for enrollment.And in some cases, you may be eligible for state income tax deductions or tax credits based on your contributions.Moreover, 529 plans work somewhat similarly to 401(k) plans. Each offers an investment menu with different options.But keep in mind that contributing more than $19,000 in 2026 would eat into your lifetime gift tax exemption.Pay Tuition and Medical Expenses Directly You can pay your children’s tuition directly to an educational institution and medical bills directly to the healthcare provider. The amount doesn’t matter and it won’t reduce your lifetime gift tax exclusion.Open a Custodial Brokerage Account for Your Child A custodial account is a savings vehicle that you manage on behalf of your child. You can transfer funds to your child once they reach the age of maturity, which can range from 18 to 25, depending on the state.One popular type of custodial account is known as a Uniform Transfer to Minor Act (UTMA) account. You can transfer virtually any type of asset to an UTMA account, such as cash, stocks, bonds, and mutual funds.But the 2026 federal gift tax exclusion of $19,000 applies here, too. And these may have a negative impact on the amount of financial aid your child would be eligible to receive.You can also manage these accounts alongside your children as you teach them the basics of saving and investing.Leave Behind Appreciated Stocks and Real EstateLeaving behind assets like stocks and real estate that have grown in value, upon death to your children, can benefit them through what’s known as the step-up in cost basis.Say you purchased $10,000 in shares of Stock A in your lifetime. At the time of death, those appreciated to $20,000. By leaving behind those stocks to your child, the new cost basis becomes $20,000. So your child could essentially sell those stocks immediately and incur no capital gains tax.Of course, your child could sell these stocks if they continue to grow at a later time and only face capital gains taxes based on that new cost basis.Other assets that take the step-up in cost basis include mutual funds, collectibles, and fine art.The Bottom Line There are many tax-savvy ways to transfer wealth to your children, and each has its advantages and disadvantages. So it’s important to think about how your child could potentially benefit from these assets and how they’d manage them. In any case, a qualified financial adviser can help you come up with tax-savvy moves to pass on assets to your children tailored to your unique situation.The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.