Grandparents sometimes consider lifetime gifts to grandchildren when planning for their financial future. Not only will the gifts give the grandchildren a good start in life and perhaps a brighter future, but by such gifts may have an added benefit to your estate: by gifting to your descendents you can reduce the size of your estate and, possibly, reduce estate taxes payable upon your passing.
The simplest form of gift is to make an outright gift, providing that your grandchild is of an age to be considered an adult. In California, that age is 18. As long as that the gift is not more than $13,000 per year per grandchild, no gift tax report is required. Married couples can double their gift. By way of example, if you and your spouse have four grandchildren, by doubling your gift, you could give away up to $104,000 per year without incurring any gift tax and without any need to file a gift tax return. Gifts that do not exceed this amount per year are called “Annual Exclusion Gifts”.
You can also make direct payments to your grandchild’s school or college for tuition and tuition related costs, as well as for his health care expenses. These payments can be made on top of the $13,000 per year, providing that you pay the school and/or medical provider directly. These gifts are sometimes referred to as the “Educational or Medical Payment Exclusion”.
If your grandchild is still a minor, you may make a gift into a custodial account managed by someone you designate. While the account can be managed by a parent if you so designate, there may be tax reasons to nominate another person to manage these accounts for the grandchild, such as an uncle or aunt. These custodial accounts are sometimes known as “UGMA” or “UTMA” accounts, and most banks and stock brokerage firms have the relevant forms to assist you in setting them up
You may also consider making gifts by funding “529 Accounts”, which are accounts set up to help pay for your grandchild’s education. There are of course other gifting vehicles, including U.S. savings bonds. It is best to check with your tax advisor or estate planning attorney regarding your planned gifting program, especially if you are contemplating gifts of appreciated property.
Gene Osofsky is an East Bay elder law attorney in California. Gene Osofsky specializes in Medi-Cal planning, wills, probate, trusts, nursing home issues, special needs planning, and disability planning. To learn more about elder law and The Law Offices of Osofsky & Osofsky, visit Lawyerforseniors.com.