Seeing the smiles of your grandchildren when you give them gifts is heartwarming. One of the great benefits of being a grandparent is the ability to spoil your grandchildren. However, complications can arise when you give money to your grandchildren. At Elder Care Direction, we can help you to understand the gift rules so that your financial gifts will not cause problems.
Before you give money, ask
When you want to give money to your grandchildren, it is important to ask their parents or them first. Some people have strong beliefs about how much money their children should have and when they should have it. Adult grandchildren may also have opinions about whether you should give them financial gifts.
Think about the tax implications
In 2019, you and your spouse are each allowed to give up to $15,000 apiece to as many people as you want without having to pay gift taxes. If you want to give your grandchildren more, you are able to do so. However, larger gifts will eat away the amount that you are allowed to exclude for state and federal estate taxes. If you make a larger gift, you will need to file a gift tax return.
Choose how you gift money carefully
While you can give your grandchildren cash, you might want them to use the money for a specific purpose or for your gift to have growth potential. You can accomplish these goals by opening specific accounts.
UTMA and UGMA accounts are opened in children’s name, but adults keep control of them until the children reach an age between 18 and 21, depending on the state. Money held in these accounts can be used for anything for the children.
Another option is a 529 plan to sock away money for higher education. These plans are tax-advantaged and can be used to pay for qualified educational expenses. Make certain that you are careful about the owner of the account because it impacts who is allowed to make decisions.
You can also open an individual retirement account for your grandchild so that he or she can have a jump start on retirement savings. In order to contribute to an IRA for a grandchild, he or she must have earned money during the year. You are allowed to contribute an equal amount of money as what they earned up to $6,000.
You can also purchase a whole life insurance policy on your grandchildren to provide protection now as well as if they develop health conditions in the future that might make it difficult for them to purchase insurance in the future. Whole life policies also build cash value over time.
Consult with Elder Care Direction
Giving financial gifts to your grandchildren is a great way to give them a start on their financial futures. To learn more about making gifts to your loved ones, schedule an appointment with Elder Care Direction by filling out our contact form.