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.
FAQs
In 2023, you could gift anyone up to $17,000 per year tax-free—this is known as the annual gift tax exclusion and is set each year by the IRS . You won't have to pay a gift tax on funds at or below this amount, and it won't add to their taxable income. This amount is per grandchild.
How do you pass money to grandchildren? ›
Gifting money to grandchildren can be an excellent way of reducing a looming inheritance tax liability – but not everyone has to pay the dreaded bill. Inheritance tax is charged on the value of your estate – that's the value of your property and your wealth – when you die.
How to transfer wealth to grandchildren? ›
Trusts can be especially beneficial for minor grandchildren, as they allow more control of the assets, even after your death. By setting up a trust, you can state how you want the money you leave to your grandchildren to be managed, the circ*mstances under which it can be distributed, and when it should be withheld.
How can I put money away for my grandchild? ›
Opening a savings account for grandchildren at a local bank or building society is a good way to start teaching them the financial facts of life. You can remind your grandchild that if they save money rather than spend it all in one go, they will have a lump sum to buy bigger items.
How can I give money to my child without paying taxes? ›
Giving cash or other assets that have little or no built-in gains is the most efficient way to gift during your lifetime. There are also techniques such as grantor retained annuity trusts and installment sales that can be structured to limit or even eliminate any negative gift tax consequences.
How much money should a grandmother give to a granddaughter at her wedding? ›
Bottom line: There's no hard-and-fast rule on how much cash to give as a wedding gift. Wedding experts do, however, advise starting at $100. From there, you may want to adjust up to $500 based on factors such as your relationship with the couple, your budget and the cost of your attendance at the wedding.
How do grandparents give money? ›
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.
What kind of account is best for grandchildren? ›
Certificates of Deposit
CDs offer a secure and disciplined avenue for this purpose. With higher interest rates compared to regular savings accounts, CDs allow your grandchild's funds to grow at a favorable rate.
What is the best way to leave an inheritance to your children? ›
In this case, a trust is the best way to leave the money to a child. One popular way to structure the inheritance is to direct the trustee to give the money in three chunks: one when the kid graduates from college (or turns 22), one a few years later, and the last at around age 30.
What is the best type of trust for grandchildren? ›
Revocable Living Trust
This type of trust will hold designated assets intended for grandchildren and allow you to name a trustee that you feel confident will manage and protect the assets for the trust's duration.
Four Ways to Give Money Tax-Free to Your Kids When You Die
- Leave behind real estate. My parents just sold their home after 40 years. ...
- Leave behind a Roth IRA. ...
- Leave behind taxable investment accounts. ...
- Buy life insurance.
Some families mutually agree to stop giving money to their grandchildren when they graduate from high school, or college, or reach a certain age such as 21, or 25, or when they get married. Or, it can be a decision made by the grandparent at any time they choose to do so.
Can I gift my grandchildren money without paying tax? ›
This is known as the annual exclusion. For 2023, the annual limit per recipient is $17,000 and for 2024 it's $18,000. In other words, you can give up to annual limit per grandchild without worrying about tax implications or filing a gift tax return.
How much money can I give away to my grandchildren? ›
In theory, you are free to give as much money as you like to your children or other family members, but in order for the gift to be tax-free, you must live for at least seven years after the date it was made. This is a Potentially Exempt Transfer (PET), sometimes known as the seven-year rule for gifts.
How to set up bank accounts for grandchildren? ›
Opening a financial account requires personal information. To open one on your grandchild's behalf, you will need their full name, birthday, complete address, phone number and Social Security number. Plus, you will submit the same details regarding yourself or another adult, like a parent, who will oversee the account.
How much money can be legally given to a family member as a gift in USA? ›
A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved.
Do I have to pay taxes on a gift from my grandparents? ›
The annual gift tax exclusion is a set dollar amount that you may give someone without needing to report it to the IRS. The threshold is typically adjusted to account for inflation each year. The IRS announced that the annual gift tax exclusion will be $18,000 in 2024, up from $17,000 in 2023.
Do grandchildren inherit money? ›
Do grandchildren have a right to inheritance? Generally, grandchildren may receive an inheritance if they are explicitly mentioned in the will or if they are the designated beneficiaries of certain assets.
What are the rules for gifted money? ›
Annual gift tax exclusion
The gift tax limit is $17,000 in 2023 and $18,000 in 2024. Note that this annual exclusion is per gift recipient. So you could give away the limit to several different people in a single year and still not have to file a gift tax return and possibly pay the gift tax.
