Gifting assets to your grandchildren not only offers them a solid foundation in life but also presents an opportunity to reduce the overall size of your estate and the associated tax burden upon your passing.

One particularly direct method of gifting is through outright gifts to your grandchildren. In 2024, you can gift up to $18,000 annually to each grandchild without the need to report the transactions. If you are married, both you and your spouse can contribute, allowing, for instance, a married couple with four grandchildren to give away up to $144,000 annually without incurring gift tax. In addition, these gifts do not count as taxable income for your grandchildren, though any earnings from invested gifts may be subject to taxation. It is essential to bear in mind that any gift may impact Medicaid eligibility.

Nonetheless, you might harbor reservations about giving outright gifts to your grandchildren, as there’s no assurance that the funds will be utilized according to your intended purpose. Thankfully, several alternatives exist to safeguard against the potential misuse of funds by your grandchildren:

• Cover educational and medical expenses directly for your grandchildren, with no limits on these gifts in addition to the annual $18,000 allowance. However, it’s crucial to make payments directly to the educational institution or medical provider.
• Establish a custodial account that parents can set up for a minor child.
• Transfer funds into a trust designed to benefit your grandchild.
• Utilize a “529 account” to simultaneously reduce your taxable estate and allocate funds for your grandchild’s higher education.
• Explore alternative gift vehicles, such as IRAs and savings bonds.

Should you wish for our assistance in determining the best way to provide for your grandchildren, please feel free to schedule a strategy session with us.