The tax law significantly increases the attraction of making gifts to shift gains from yourself to your children.

But snags are plentiful, so consider your options carefully before you go the gift route.

For starters, the rules limit parents’ ability to shift investment income from themselves to their younger children. In 1998, a child under the age of 14 is taxed at the parents’, not the child’s, rate on the total dividends, capital gains, and other investment income that exceeds $1,400. Whatever the source, earnings above $1,400 are taxed at the parents’ rate. The first $1,400 typically gets only about a $100 tax bill.

Every citizen can make up to $10,000 of tax-free gifts per year to as many people as they want. For married taxpayers, the combined annual exclusions double to $20,000 per donee. Ordinarily, you should not make a gift of property worth less than what you paid for it. You forfeit the loss deduction by doing so. Another option available to parents is to put a child’s money in tax-free muni bond funds. The easiest, and least expensive, way to transfer assets to young children, without the bother and expense involved in outright gifts, guardianships, or trusts, is to use a Uniform Gifts to Minors Act or Uniform Transfer to Minors Act (UGMA/UTMA) account.

As soon as you establish such accounts and make irrevocable gifts, you can use those assets only for your children’s benefit. You cannot get them back while your children are minors, nor even after they reach the age of majority (usually 18 or 21, depending on state law), unless, as adults, they are willing to return them.

Put another way, once the law confers control to your children, they are free to use the property as they wish, whether for college or cocaine. Consequently, consider your future financial position and their financial competence before you bid a permanent farewell to your property. If you are concerned, consider channeling assets into a trust, which allows you to define, within limits, when and how the money can be spent or invested.