8 rules you need to know on how to give your family money for a holiday

8 rules for giving money to family

Gifting money to family members can help show you they care, and is especially helpful if they live far away. Perhaps you’re not sure what they’d like for their birthday, or you’re helping them pay for medical expenses.

Whatever your reason, there are some important factors to consider before sending a gift. Potential tax consequences top the list from a legal perspective, especially if you’re sending a large amount. There are also rules of thumb and considerations based more on etiquette and family relationships that should be kept in mind.

Let’s look at eight rules for gifting money to family in 2024 so you can be as prepared as possible.

1. Understand the financial situation of the recipient

Think about your family member’s financial situation. Is this person struggling with mounting medical bills? Can they pay their bills regularly? Have they been trying for years to save up to buy a home and are having a hard time meeting the down payment requirements?

Giving money to family members can be more beneficial than traditional gifts, and even make sense if that person is facing financial hardship or is working toward a goal. For example, if the money you give helps your loved one pay their mortgage for a few months, it may help enable them to better care for their children.

2. Determine the purpose of the gift

Why are you giving money at all? Are you giving money to this family member for a specific purpose, such as books for college classes? Or maybe your grandson hopes to go into business?

Understanding the purpose of your gift can help set clear expectations for how you want the money to be spent. Before you send money, you may want to talk to the recipient to make sure they understand the purpose of your gift.

Let’s say you give money for a wedding. Consider telling the newlyweds that you want them to use the money for their honeymoon, furnishings for their new home, or a down payment on a future home.

3. Determine the amount

One of the most important rules for gifting money to family is to look at your financial situation when deciding how much to give. Of course, you want to show your family that you care about them, or even support them in their time of need.

But don’t lose sight of your own financial stability. How would your family feel if they knew you were giving them money without taking care of your own needs?

Whether you’re giving money for a graduation or a birthday, take a look at your finances first. Consider how much of your budget goes towards meeting your needs and what is left over. Don’t lose sight of your own financial goals, such as saving for a vacation or retirement, when deciding on the amount you want to give.

4. Know the tax consequences

In some countries, such as the United States, you can gift money to family members tax-free only if the gift does not exceed a certain amount.

For example, the IRS rules for gifting money to family in 2024 stipulate that you can give up to $18,000 to any person during the year without having to report the gift to the IRS. This is called the gift tax exemption, and the amount may change each year. Exceeding the amount does not necessarily mean that you or the recipient will owe taxes on the gift. But you may have to file a form with your tax return stating that you gave more than the annual exclusion amount. You’ll only have to pay taxes if you’ve exceeded your lifetime gift tax, which in 2024 will be $13.61 million.

This is just a US rule. When gifting money, even to family members, be sure to check the tax rules where you (and perhaps your recipient) live. Because tax laws can be complex, it is best to consult with a financial professional to understand the tax implications of your gift.

5. Understand the legal aspects

In addition to taxes, there may be legal issues involved when gifting money to family members, especially if you want to gift a significant amount. In some cases, you may need to provide official documentation proving it is a gift.

For example, in both the UK and US, you can gift money to family members so they can put a down payment on a house. Although there is usually no limit on the amount, mortgage lenders require that you provide a written letter formally acknowledging that you are giving the money as a gift. Some other requirements may include where the money is coming from and your government-issued identification.

Before doing anything, consider checking the legal implications with a trusted attorney in your jurisdiction.

6. Analyze the impact on your relationship

Money can be both a source of happiness and stress. Giving money to family can feel especially rewarding knowing you’re helping. However, sometimes it can also create tension or expectations. If you give money regularly, family members may expect that money regularly, and if you stop giving money, it may do more harm than good. Or other family members may be offended if you give money to one family member and not others.

Ultimately, you decide whether to give money to family members, how often and in what amount. If you feel this could have a negative impact on your relationship, proceed with caution. It may take time to be open and honest with everyone about the purpose of your gift.

7. Set personal boundaries

Part of managing expectations when giving money is setting clear boundaries about how much and when you give. Perhaps you want to regularly send money online to a family member because they lost their job. In this case, you need to be sure to set clear expectations about how long you will be sending money.

For example, you could tell this person that you will only be sending money for the next four months to help pay for housing until they find a new job. Or you can ask them to tell you if they find a job in less than four months so you can stop sending money.

Setting clear personal rules for gifting money to family can protect your financial well-being and your relationship with your family.

8. Consider alternative gifts

In the end, it is up to you how you approach the etiquette and rules of gifting money to your family. Of course, you must comply with tax and legal requirements. But you also need to consider your personal limits and boundaries.

Sometimes giving a large amount of money is not an appropriate solution, for example, if you cannot afford it. Instead, you can find other ways to support your family member.

For example, if all you can afford is to help pay for diapers for your niece’s newborn son, that’s fine. Or, if you’re concerned that your son can’t find a reliable car to get to and from work, consider helping him cover his car loan payments.

This article originally appeared on westernunion.com and was syndicated MediaFeed.org

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