My Parents Give Me $28k a Year

My parents gave me $3000 for the down-payment on my first house, which cost $100k. Otherwise I wouldn't have been able to afford to buy a house. But I bought instead of renting and ended up selling it for $200k years later. That was a big financial win early on and meant I was never in debt again.

My financial situation at the time was barely-making-ends-meet, so I had to sell the house to recover the equity to buy a car and move across the country when I was transferred.

Had my parents given me $30k as a one-time gift, I wouldn't have had to sell that house at all and would have rented it out in perpetuity. That would have been about $1000k a month of income for me, in addition to keeping the equity in the house.

I've resisted spending money on a lot of things like, say, home renovations, new cars, etc. until I felt like I was paying for it solely from interest earned on investments or the purchase was an absolute necessity. The only reason I was able to start investing at a young age, on a very small income, was the sale of that house. Those savings have compounded, but more importantly I've always had enough cash to cover incidental expenses and that's enabled me to continue investing.

Even small gifts can lift you out of a cycle of poverty. $3000 at the right time made a dramatic difference in my financial situation and will for the rest of my life. But $30k at the right time would ultimately have been worth about an extra $500k to me twenty years later.

$30k a year like in the article would have just ensured I was as rich as my parents. That would have all gone to investments.

At high levels, like giving your kid ten billion dollars, you're making it impractical or impossible for others to advance economically. You're creating a class of people with indestructible inherited wealth that never have to work, that only have to collect interest and rent on the backs of everyone else.

That's what inheritance tax and gift taxes seek to disrupt.

The notion of "the family" is not a thing unless you're talking about dependents. Transferring money from one person to another is income for the person receiving the money. It's not being taxed twice, just once per time "earned". (and it's not even taxed until the limit per the comment in this thread! TIL)

To allow for these kinds of gifts they limit the amount that is tax free. Allowing unlimited gifts to "family" would likely result in all businesses being "family" businesses, etc etc. Lots of downstream ramifications.

So this seems to answer "how do I help my kids a reasonable amount without being taxed without creating a giant dodge"

Giant dodges are best done using LLCs and ownership by other family members. Typically this overhead costs a lot more to manage though, so it's only available to the super wealthy.

I kid here, a bit. But it's clearly also something being done quite often.

But federal inheritance tax doesn't kick in until you leave over 11 million to an individual, and many states don't have an inheritance tax, so most people won't need to worry about this. (Not legal advice, states differ, etc.)