18670 Gift to Grandchild - gifting money to grandchildren

Last Updated on February 14, 2024 by Tresi Weeks

Gifting money to your grandchildren can do more than help your descendants get a good start in life — it can also reduce the size of your estate and the tax that will be due upon your death, and is thus a very useful tool to include in your estate plan.

Methods for gifting assets to grandchildren

Weeks Law Firm handles all areas of estate planning, trusts and related matters. In our experience, gifting assets to grandchildren is not just an act of familial care but also a wise financial decision. We often hear the question: “How much can I gift my grandchildren – and how should I do so? “Here are some of the best ways for grandparents to give money to grandchildren.

Can grandparents give money to grandchildren tax-free? Yes, this is indeed possible. Perhaps the simplest approach to gifting is to give the grandchild an outright gift. You may give each grandchild up to $16,000 a year (in 2022) without having to report the gifts. If you’re married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $128,000 a year with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts, if they are invested, will be taxed). Just remember that any gift can interfere with Medicaid eligibility.

But you may have some misgivings about making outright tax-free gifts to grandchildren. There is no guarantee that the money will be used in the way you may have wished. Money that you hoped would be saved for educational expenses may instead be spent on a fact-finding mission to Fort Lauderdale. Fortunately, there are a number of options to protect against misuse of the funds by grandchildren:

You can pay for educational and medical costs for your grandchildren. There’s no limit on these gifts, meaning that you can pay these expenses in addition to making annual $16,000 (in 2022) gifts. But you have to be sure to pay the school or medical provider directly.

You can make gifts to a custodial account that parents can establish for a minor child.

You can transfer money into a trust established to benefit a grandchild.

You can reduce your taxable estate while earmarking funds for the higher education of a grandchild through the use of a “529 account.”

You can use other gift vehicles like IRAs and savings bonds.

To determine the best way of gifting money to grandchildren, as well as managing all other aspects of your estate planning, the best thing to do is discuss your questions and concerns with your estate planning attorney. With their help, you can devise the wisest and most beneficial plans for passing assets on to your descendants.

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