Gifting Money To Son-In-Law: A Parent's Guide

Gifting money to children and their spouses is a common practice for parents, especially for those with substantial family resources. When it comes to giving money to a son-in-law, parents often prioritize generosity, responsibility, and fairness. However, it is important to consider the financial benefits, tax implications, and emotional impact of such a gift. In 2024, the annual exclusion limit for tax-free gifts was $18,000 per individual, and $36,000 for a married couple. This means that a parent could give their daughter and son-in-law each $18,000 without having to pay taxes on the transfer. This limit is subject to change and, in 2025, is set to increase to $19,000 per individual and $38,000 for a married couple. It is worth noting that direct payments for tuition or medical expenses are not considered gifts and are therefore tax-free. Additionally, parents can open a 529 savings account for their son-in-law, which grows tax-deferred and allows for tax-free withdrawals as long as the funds are used for qualified educational expenses. While gifting money to a son-in-law can be a great way to provide financial support, it is important for parents to also consider their own financial needs and retirement plans before making any decisions.

Tax implications of giving money to a son-in-law

In the US, the Internal Revenue Service (IRS) allows you to give away a certain amount of assets each year without incurring tax. This includes giving money or property to your son-in-law. This is known as the annual exclusion limit, and it changes each year. For 2024, the limit is $18,000 per individual, rising to $19,000 in 2025. So, in 2025, you can give your son-in-law up to $19,000 without having to deal with the IRS or pay any gift taxes.

If you give more than the annual limit, you will need to file a gift tax return on IRS Form 709. This is purely an informational return, and you will not have to pay any tax until you cross the lifetime limit. In 2025, the lifetime exemption limit is $13,990,000, and any gifts above the annual exclusion will count against this. For example, if you give your son-in-law $20,000 in 2025, you will need to file a gift tax return and deduct $1,000 from the lifetime exemption.

There are some types of gifts that are tax-free and do not count towards the lifetime limit. These include direct payments for tuition or medical expenses, which must be made directly to the educational institution or healthcare provider. You can also give money to a qualifying tuition plan (QTP) or a 529 savings account, which is a tax-deferred way to save for education. Each state has an aggregate limit for 529 plan balances, and you can give up to the annual gift tax exclusion to this type of account.

It is important to note that the person giving the gift is responsible for paying any gift tax due, not the recipient.

Annual exclusion limits

In the United States, the Internal Revenue Service (IRS) allows individuals to give away a certain amount of assets each year without having to pay taxes on the transfer. This is known as the annual gift tax exclusion. For 2024, the annual exclusion limit was $18,000 per individual, meaning that a person could give up to $18,000 to each of their children without incurring gift taxes. For a married couple, the limit was $36,000 ($18,000 from each spouse). This means that, for example, parents could give a total of $36,000 to their daughter and son-in-law without paying taxes on the gifts.

If an individual gives away more than the annual exclusion amount in cash or assets (e.g. stocks, land, a car) to any one person during the tax year, they will need to file a gift tax return in addition to their federal tax return the following year. It is important to note that the annual exclusion is per recipient, not the sum total of all gifts given by the individual. This means that a person could give the maximum amount to multiple people in a year without having to file a gift tax return. For example, in 2025, an individual could give $19,000 to their cousin, another $19,000 to a friend, and so on, without having to file a gift tax return in 2026.

Any amount given over the annual limit is subtracted from the individual's larger lifetime limit. The lifetime gift tax exemption was $13.61 million in 2024 and increased to $13.99 million in 2025. This means that, in theory, an individual could give away up to $13.61 million in assets over their lifetime without having to worry about gift taxes. However, in 2026, the exclusion amount is expected to revert to its pre-2018 level of about $5 million (adjusted for inflation).

There are some exceptions to what the IRS considers a taxable gift. For example, direct payments for tuition or medical expenses are not considered gifts and are therefore tax-free. Additionally, gifts to a spouse, gifts to a political organization, and gifts to qualifying charities are also not considered taxable gifts.

Strategies for gifting

When it comes to gifting money to a son-in-law, there are several strategies that can be employed to maximize the gift and minimize any potential tax implications. Here are some strategies to consider:

Direct Gifts:

For 2025, the annual exclusion limit for gifts is $19,000 per individual. This means that a parent can gift their son-in-law up to $19,000 without having to deal with the IRS or pay any gift taxes. If the parent is married, they can utilize a gift-splitting strategy, where both spouses gift the same person $19,000 each, for a total of $38,000.

Funding Education or Buying a Home:

Direct payments for tuition or medical expenses are not considered gifts and are tax-free. Anyone can open a 529 savings account on behalf of a beneficiary, and the funds can be used for qualified educational expenses such as tuition, books, and room and board. These accounts grow tax-deferred, and withdrawals are tax-free as long as they are used for qualified expenses. Additionally, helping with student loans or a home down payment can be a strategic way to provide financial support.

Establishing Trusts:

Trusts can be used to manage and protect assets, support financial needs over time, and potentially reduce estate taxes. Trusts can be set up to disburse funds when the beneficiary reaches adulthood, ensuring that the funds are used responsibly and for the intended purposes.

Custodial Accounts:

Custodial accounts (UGMA or UTMA) allow for gifting money or property without immediate tax implications. The assets are managed by a custodian until the beneficiary reaches adulthood.

Timing and Future Planning:

It is important to consider the timing of gifts. For example, if a parent wants to set aside a certain sum today but intends for it to be used in the future, they may want to hold onto the gift until it is needed. Additionally, larger gifts should be made before 2026 when the lifetime limit for gift taxes is expected to revert to the pre-2018 level of around $7 million.

By understanding the various strategies available, parents can effectively gift money to their son-in-law while minimizing any potential tax implications. It is always recommended to consult with a financial advisor to navigate the specific tax laws and determine the best approach for an individual's circumstances.

Using trusts to manage assets

Trusts are a great way to manage and protect assets, support financial needs over time, and potentially reduce estate taxes. They can be used to manage property for a beneficiary when direct ownership by the beneficiary is not desired. Trusts can also be very useful for asset protection purposes if the creditors of the beneficiary are prevented from reaching the trust's assets. A trust can be an effective way to place assets outside the reach of creditors.

There are many types of trusts available to transfer your assets in the manner you choose. For example, subtrusts can be created to cover the care of a disabled child, a family member with an alcohol or drug dependency, and even family pets. A funeral trust can be set up to cover funeral and cemetery arrangements, ensuring your heirs do not have to immediately access their personal funds for funeral-related expenses. A generation-skipping trust minimizes death taxes for children and grandchildren by only distributing income to a child. A revocable living trust is a great tool to help your assets pass smoothly to your beneficiaries and protect them during your lifetime.

It is important to understand what the family wants to accomplish, such as funding for education, leaving an inheritance, or protecting assets, and to determine the best timing for those goals. While one main goal of passing down wealth may be to provide financial support for the family for generations to come, families should understand the tax implications of such giving. For example, in 2024, you can give away up to $18,000 per individual without having to pay taxes on the transfer. In 2025, this limit is set to increase to $19,000.

Gifting to a dependent son-in-law

For 2024, the annual exclusion limit is $18,000 per individual, meaning you can gift your son-in-law up to this amount without having to worry about gift taxes. This limit is subject to change in 2025, increasing to $19,000 per individual. It's important to stay updated with the latest limits to ensure your gifts remain tax-free.

If you're considering gifting more than the annual exclusion limit, you can do so without immediate tax implications by using a custodial account. Any amount over the annual limit will count against your lifetime exemption. For example, if you give your son-in-law $20,000 in 2024, your gifts would be $2,000 over the annual exclusion, reducing your lifetime exemption accordingly.

Another option to consider is establishing a trust. Trusts allow you to manage and protect assets, support financial needs over time, and potentially reduce estate taxes. An irrevocable trust may be particularly useful if the value of your estate exceeds the lifetime exemption. While trusts offer more control over the distribution of your gifts, it's important to note that they typically cannot be changed or amended once created.

It's always recommended to consult with a financial advisor or tax professional to navigate the complexities of gifting and to ensure you understand the tax implications of your specific situation. They can provide guidance on tax-efficient strategies and help you make informed decisions about gifting to your dependent son-in-law.

Frequently asked questions