Week 9: Gifting with Intention
My first job out of undergrad was at the world's largest wealth management firm. One of the desks I worked on was the philanthropy group, where we helped clients build purpose, connection, and intention around their giving. It was a formative experience and also one of those moments where you wonder who thought it was a good idea to put a 23-year-old in a room talking to a billionaire about the legacy they wanted to leave. I didn't have the answers yet, but I was picking up more than I realized at the time.
Over the past few weeks, we’ve covered organizing, building, strategizing, and protecting your wealth. If you've done the groundwork well, hopefully you eventually end up in a position where you can think about gifting. Gifting is about deciding, on purpose, what some of that wealth is actually for.
Most gifting conversations eventually split into two categories: gifts to family and gifts to charity. Many of the same concepts apply to both, but there are some real nuances worth walking through for each.
Gifting looks different depending on where you are
I’m going to generalize some here. At the VP and Principal level in your career, most of your net worth is on paper. This is the Donut Hole phase we've talked about before. Gifting usually means staying inside the simple lanes: annual exclusion amounts and 529 contributions. Anything larger competes directly with your own liquidity needs.
As you realize carry, the picture changes. You have real liquidity, and you may start recognizing that there's a meaningful chance you won't spend all of this money during your lifetime. That's when the conversation usually shifts from simple gifting toward more deliberate planning.
As you get older, your wealth may move further beyond what can ultimately pass under the lifetime exemption. Your own kids also become known quantities rather than question marks. At that point, the conversation can shift again toward larger structural moves: using more of your lifetime exemption deliberately and thinking through how gifting substantial assets to family actually impacts them, for better or worse.
How the exclusions work
Two concepts are foundational when thinking about gifting. The annual exclusion is the amount you can generally give to any one person each year without using your lifetime exemption or creating a federal gift-tax filing requirement.
The lifetime exemption is the much larger amount you can transfer during your life or at death before gift or estate tax applies. Give more than the annual exclusion and you generally have to report the gift, but that doesn't necessarily mean you owe gift tax. Instead, the excess typically uses a portion of your lifetime exemption. One wrinkle worth knowing: certain tuition and medical expenses paid directly to the school or medical provider can fall outside both the annual exclusion and your lifetime exemption.
Charitable giving works a little differently. A gift to a qualified charity may generate an income-tax deduction while also removing the gifted asset from your estate.
A donor-advised fund adds another layer of flexibility: you generally receive the charitable deduction when you fund the account, while retaining time to decide which charities ultimately receive the money.
For PE professionals sitting on appreciated stock, or facing a high-income year around a carry event, funding a DAF with appreciated shares rather than cash can be an efficient move, particularly when the charitable intent already exists.
The mechanics matter, but the more interesting questions are usually about how and when to give.
Lifetime giving vs. giving at death
An inheritance arrives after you're gone. A gift given during your lifetime lets you be there for it. Same dollars, very different experience. If part of your plan is to help with a first home, a business, a grandchild's education, or a cause you care about, the timing is part of the gift, not a footnote. Giving during your lifetime also means you get to watch how it plays out, adjust course if circumstances change, and see the impact firsthand.
The bank of mom and dad
Not everything has to be a gift. A loan preserves your lifetime exemption for later, keeps things fair if you have other kids who haven't asked for help yet, and creates less ambiguity down the road than an outright gift would.
A loan that's intended to be treated as a real loan should look like one: documented terms, a repayment schedule, and an appropriate interest rate.
This is where the bank of mom and dad can actually be a smart planning tool. Depending on the structure and term, a properly documented intra-family loan can often be made using the IRS's Applicable Federal Rate as the starting point. Your child may get a better rate than the market, you receive interest income, while your child still maintains the responsibility that comes with repaying the loan.
Transferring the thinking, not just the assets
A trust document can move assets. It can't fully move context. Most estate planning prepares the assets for the next generation. Not as many prepare the people.
That gap is really about the difference between privacy and secrecy. Privacy means not every number needs to be shared with every person at every age. Secrecy means no one learns anything until they have to.
You don't have to disclose every dollar to disclose your thinking. The more valuable conversation with your kids is usually not "how much," it's "what is this for, and why did we structure it this way?" That's a conversation you can only have while you're still around to have it.
Final thoughts
Working in private equity creates an opportunity to generate significant wealth to fund your lifestyle, support your family, and make an impact on the world around you. If there's a theme running through this series, it's that I'm a huge proponent of intentional wealth.
The goal isn't simply to move assets out of your estate or maximize a tax deduction. It's to be deliberate about what the money is for, who you want it to help, and when you want it to help them.
Next week, we'll take this one step further and cover the basics of trusts and estate planning: what the major structures actually do, when they start becoming relevant, and where an attorney needs to enter the conversation. I'm not going to step out of my lane as a financial advisor, but understanding the basic concepts can make your conversations with advisors much more productive.
Important Disclosures:
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Axiom Private Wealth, LLC. does not provide tax or estate planning advice. Please consult with your tax advisor or attorney. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. Axiom Private Wealth, LLC (“Axiom”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Axiom and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at http://www.axiomprivatewealth.com/. For current Axiom information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Axiom’s full legal name or CRD #307388. Axiom and its advisors do not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.
Risk Disclosure
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable. Although bonds generally present less short-term risk and volatility risk than stocks, bonds contain interest rate risks; the risk of issuer default; issuer credit risk; liquidity risk; and inflation risk. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Axiom’s strategies are disclosed in the publicly available Form ADV Part 2A
