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Parents spend a lot of money on their children while raising them -- on food, clothing, school, summer camps, braces, guitar lessons, lacrosse equipment, travel experiences, and much more. Parents also simply give their children money sometimes, especially they're older and need to make major purchases such as a home or a honeymoon.

But if you're not smart about how you shell that money out, you could lose a lot of it to taxes. So here are three smart ways to pass your wealth to your kids.

Selena Maranjian
One smart way to pass your wealth on to your children is quite simple: Give them gifts of money. The IRS lets you do so tax-free, as long as you don't give more than a certain limit, which is periodically raised. For 2016, the "annual exclusion for gifts" is $14,000.

If you're reasonably well off, then $14,000 might not seem like much, and you may want to transfer a lot more than that to your kids. Fortunately, the limit applies to each recipient for each year, from each donor. So if you're married and you have three children, you and your spouse can each give up to $14,000 to each of your kids -- every year. That's $84,000 in a single year. Over just five years, you can transfer a whopping $420,000, tax-free. (Be sure to write separate checks for each $14,000 gift -- and tell your kids that they should cash or deposit the checks in the same year that they receive them.)

You may be able to give your children additional sums if they have tuition or medical bills. If you pay those bills -- by sending the money directly to the school or healthcare provider(s), not to your child -- then those sums can be tax-free gifts, too.

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Brian Stoffel
If you can help ensure that your child isn't burdened with student loan debt that will take decades to pay off, then that's as good as passing your wealth on to them. And I think a Coverdell Education Savings Account (ESA) is a great way to get that done. 

As opposed to a 529 plan, a Coverdell allows you to make your own investment decisions. While that may not matter to a novice investor, it means that a more seasoned market participant can pounce on stock opportunities as they arise. Distributions from a Coverdell ESA are not taxed if they are spent on qualified education expenses. 

Of course, there are downsides, such as the fact that you are only allowed to contribute $2,000 per year per child. Furthermore, if the money isn't used for qualifying education expenses, it can be taxed -- which defeats the purpose of the Coverdell in the first place. But given that the contribution limits are low, while college costs are historically high, you're unlikely to run into that problem.

Matt Frankel
Another great way to pass wealth to your kids is through a Roth IRA. From an estate-planning standpoint, a Roth IRA has some useful features. Specifically, you can continue to contribute to a Roth IRA for as long as you have earned income, and you're not obligated to withdraw any money from the account for as long as you live, which means you can leave your investments to grow for the rest of your life.

Best of all, since you've already paid tax on the money you deposit into a Roth IRA, your heirs won't have to pay tax on withdrawals so long as the account has been open for at least five years.

After you die, your kids will have a couple of options: They can choose to take the proceeds as a tax-free lump sum, or they can allow the money to continue to grow and compound for years. They will, however, have to take required minimum distributions (RMDs) from the account beginning in the year you die. Fortunately, RMDs are relatively small are and are calculated based on the IRS Single Life Expectancy Table.

For example, if your child is 40 years old when they have to start taking distributions from your Roth IRA, they can spread those distributions over a period of 43.6 years. This means that if the IRA has $1 million in it, the first required distribution will be just $22,935. The rest of the account is free to stay invested and grow tax-free, which is why a Roth IRA is a great way to provide your children with tax-free investments that can grow for the rest of their life.

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