Not only can gifting assets to your grandchildren help them get a better start in life financially, but it can also help you by reducing the size of your estate and the tax due after you pass away.
An outright gift to each grandchild may be the simplest way to do this, and you can give them up to $16,000 a year (in 2022) before having to report your gifts. Also, if you are married, you and your spouse can both give gifts of up to this amount (bringing it up to $32,000 that could be given to each grandchild) without gift tax implications. These gifts also do not count as taxable income, although earnings will be taxed if these gifts are invested. However, keep in mind that gifts can have an effect on Medicaid eligibility.
You may be hesitant to give outright gifts to your grandchildren, especially if you wish for this money to be used in certain ways. If that’s the case, here are some options to consider:
· You can pay for your grandchildren’s educational and medical costs, and there is no limit on these gifts. You can pay toward these expenses in addition to the annual $16,000 (in 2022) that you can gift each person. Just make sure that you pay the school or medical provider directly.
· You can make gifts to a custodial account if parents have established one for their minor child.
· You can transfer money into a trust if one has been established to benefit your grandchild.
· You can use a “529 account” to reduce your taxable estate while designating funds to be used for your grandchild’s higher education.
· You can use IRAs, savings bonds, or other instruments for gifting.
For help deciding on the best way to give gifts to your grandchildren, or for help creating or updating your estate plan, contact us at Wilson and Wilson Estate Planning and Elder Law, LLC at 708 482 7090 for our main office in LaGrange, Illinois or at 847 656 8958 for our Northbrook, Illinois office.