If you have grandchildren – or are getting ready to welcome one – you know the special joy they bring. After all, you can now leave all the heavy lifting to the parents and just enjoy connecting with them. Many grandparents who enjoy financial freedom are often more than generous to grandchildren. And some even wish to see their grandchildren enjoy an inheritance now instead of waiting to pass along assets after they are gone. Pierchoski Estate Law can help!
If that’s you, here are 7 things you should think about before you make gifts to grandchildren.
Clarify the gift. Most grandparents gift outright, no strings attached. But if you think you are providing a loan or an advance on an inheritance, you need to clarify that in writing.
Equal treatment. It is not unusual for a grandparent to be closer to some grandchildren than others, but when you are gifting assets, unequal treatment among grandchildren could lead to family resentments. Even if you give more to some than others during your life, consider treating all grandchildren equally in your estate plan.
Taxes. With the federal gift tax threshold at $5.25 million (double that for married couples), most people won’t have to worry about paying federal gift taxes. However, any gift to an individual that exceeds $14,000 each year ($28,000 for married couples) must be reported on a gift tax return.
Education. You can help with a grandchild’s college tuition by making payments directly to their educational institutions, which don’t have to be reported. And there is no limit on these contributions. Investing in a 529 plan for each of your grandchildren is also a great way to help them (and their parents!) save for college, building a tax-deferred account that will never be taxed as long as it is used for educational purposes.
Your own needs. It’s tempting to be too generous in making gifts to grandchildren, but you should not give to the detriment of your own needs. Finding the right balance will help ensure your children and grandchildren don’t have to support you because you gave too much to them.
Long-Term Care. Chances are that you will need some kind of long-term care at the end of your life, research shows that most of us will. If you can’t afford long-term care and need help, any gift of assets you have given could make you ineligible for Medicaid benefits for five years.
Consider a trust. There are many reasons why you should not give gifts of cash or assets to grandchildren, some that you may not even be aware of. Lots of cash could be fuel on the fire of bad behavior or undermine your own children’s goals for their children. To make a lasting gift, consider using a trust that will pass assets along to grandchildren safely and protect those assets from bad behavior, bad marriages and bad credit. One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation.
Call our office today to schedule a time for us to talk about a Family Wealth Planning Session, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security.
To learn more make your appointment with Pierchoski Estate Law. Call 931-363.7222.