8 Ways to Gift Assets to Your Grandchildren

Just when you think you’ve reached a point in life where you know exactly what love is, along come grandchildren. And it’s fun to spoil your grandchildren! When they are little, it’s so easy. You can let them have ice cream before dinner, give them that amazing game system they wanted (and their parents wouldn’t buy), or let them stay up extra late.

There are more momentous ways to make your grandchildren’s lives a little sweeter as they get older. If you are fortunate enough to have the ability to gift financial assets to your grandkids, there are a lot of different ways to legally sidestep taxes for both you and your grandchildren. And a number of these options also make it possible to earmark the money for specific purposes or protect it for when a child is older.

Cash is King.

The simplest approach is to give an outright gift. In 2022, you can give each grandchild up to $16,000 a year without having to report the gifts, and without the gift counting as taxable income for the grandchild.* And, if you are married, both you and your spouse can each make such gifts, meaning that a married couple with four grandchildren may give away up to $128,000 each year with no gift tax implications.

* Caveat — If your grandchild invests the gifted money, any earnings on that investment will be taxable.

Pay for educational or medical costs.

There is no limit on how much you can gift if you are paying for either school tuition or medical fees. (And that’s on top of the annual $16,000 allowed in 2022 as a direct cash gift.) The only catch is that you must pay the school or medical provider directly.

Make gifts to a custodial account or a trust.

If your grandchildren are very young (and even if they are pretty grown up), it’s wise to put the money somewhere for safekeeping to avoid the tragedy of a grandchild squandering funds either intentionally or due to an unwise decision. Parents can establish a custodial account for a minor child, or you can set up a trust with your grandchild as the beneficiary.

Set funds aside for higher education in a 529 account.

If your wish is to gift college tuition but your grandchild is still in diapers, you easily reduce your taxable estate while allotting funds for your intended purpose by setting up a 529 account.

Go traditional with IRAs and savings bonds.

There is something to be said for the tried-and-true options like IRAs or savings bonds. A custodial Roth IRA, for example, gives you a place to gift funds in a way that is controlled until your grandchild is 18. A Series I savings bond is another convenient gifting choice that is backed by the U.S. government, and which – if used to pay for college – represents a tax-free gain.

So many ways to make a difference for your grandchildren.

Regaling your grandkids with tales about how tough life was back in the old days (having to walk to school each day at 5 A.M. … uphill … in the snow … carrying your little sister), will attract a good eye roll from your audience. The truth is that young people today face a lot of very real challenges of their own.

Gifting assets to your grandchildren is a generous and potentially life-changing way to help the youngest members of your family. And it can also reduce the size of your estate and the tax that will be due upon your death.

Every family is different so if you need help ascertaining how to best provide for your grandchildren, feel free to call us at (860) 236-7673, or send us an email. We’d love to help you figure out which approach is right for you.

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