• Pay for specific expenses. Rather than making a general cash gift to your son or daughter, offer to directly pay for a specific expense. You might pay for a vacation or private school for your grandchildren. Probably the best option is to directly pay for medical expenses or education costs, since those expenditures won’t count toward your annual tax-free gift limit of $12,000 in 2006 ($24,000 if the gift is split with your spouse).

• Keep the money separate. If you make cash gifts to your children, you might stipulate that the money be kept in a separate account solely in your child’s name. Typically, those accounts won’t be included in divorce settlements, so the funds will stay with your child.

• Consider trusts. One way to keep control of the gifts is to set up a trust, naming your children as beneficiaries. However, due to the costs involved in setting up trusts, you probably won’t want to use this strategy unless significant sums of money are involved.

• Encourage your child to sign a prenuptial agreement. This agreement specifies how assets acquired during the marriage, including gifts and inheritances, will be distributed after death or divorce. While a prospective spouse may not like the idea of signing a prenuptial agreement, it is probably in his/her best interest if it encourages you to gift more generously to your child

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