Gifts to Grandchildren

Many grandparents want to benefit their grandchildren, in addition to gifts they may make or leave to their children. Certainly one aspect of this is the relationship that grandparents may have with their grandchildren.

Gifting can be helpful for tax and estate planning purposes as well, in addition to helping your grandchildren become more financial secure.

The simplest way to making gifts to a grandchild is an outright gift. You may give each grandchild up to $14,000 per year (in 2014) without needing to file a gift tax return. If you’re married your spouse also can make a gift. The numbers can add up.

Example: John and Mary want to make gifts to their 5 grandchildren, and ask you how much they can give this year without filing a gift tax return. They each may gift up to $14,000 per year, which would be $28,000 times 5 or up to $140,000 per year without gift tax. Of course, John and Mary may gift less than this amount, but they are relieved that this will not involve extra tax returns or gift taxes.

But is it wise to make outright gifts to your grandchildren? That depends on the size of the gift, and whether you’d like to have some control over how the money is spent. Particularly if you’re making a large gift, whether in one year or over time, you may not want to make those gifts outright. The grandchild might still be a minor, or you may worry that while an adult they would not use the money wisely. Also, keep in mind that the gifts could have Medicaid implications for the grandparents.

Here are some ways you can have more control over how the funds are used by grandchildren: