Illinois Gifting to Grandchildren
Gifting assets to your grandchildren can reduce the size of your estate and the tax that will be due upon your death.
You may give each grandchild up to $13,000 a year without having to report the gift. If you are married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $104,000 a year with no gift tax implications. In addition, the gifts will not count as taxable income to your grandchildren (although the earnings on the gifts if they are invested will be taxed).
You can pay for educational and medical costs for your grandchildren. There is no limit on these gifts, so you can pay these expenses in addition to making annual $13,000 gifts. But you must be sure to pay the school or medical provider directly.
Uniform Gifts to Minor Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allow grandparents to establish a custodial account for a minor child. Since the account is in the name of the child, the tax liability can be shifted to the child, who is presumably in a lower tax bracket. Gifts to such accounts are irrevocable, and the custodian must turn the funds over to the child when he reaches 21 years of age. Until that time, the grandparent retains control of the money and decides how it will be invested.
A Gift Trust has tax and estate planning advantages, the grandparent controls the funds and the money does not affect a grandchild’s eligibility for financial aid. In particular, transferring funds to a Gift Trust offers the following benefits:
1) You can reduce the size of your estate by transferring up to $13,000 into each trust you create for each grandchild. No gift taxes will be due in connection with the transfers;
2) Although the trust owns the assets, you control them as trustee and can decide what type of investments to make;
3) Income earned by the trust from amounts that you have deposited will not be taxed to you; the trust pays the taxes;
4) Amounts deposited in the trust, and the income earned from those funds, will be used for the benefit of your grandchildren; and
5) You can provide that the trust terminate at any age you specify.
Contact your estate planning or elder law attorney for more information.
