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Guidance on grandparent gifting

Grandparents are regularly generous with grandchildren,
sometimes giving significant amounts of money.
Often they want to share their resources to leave a
legacy. In some cases, their children or grandchildren are
dealing with financial hardship. Grandparents might also believe that
their kin shouldn’t have to wait for their inheritance.
Grandparents commonly provided assistance paying for summer
camp, college tuition, weddings or down payments for homes.

They should keep the following factors in mind when giving to
grandchildren, however, and they should be sure to contact an attorney
who can advise them on the tax implications of their kindness.
If you’re not giving a gift, state it clearly. If you expect anything,
such as repayment, in return, or if the gift is an advance on the
recipient’s inheritance, put it in writing. Indicate it in a note along
with the check, or in a promissory note if it’s intended to be a loan.

Think about all grandchildren and how they are treated. One
grandchild might have greater financial need than another, or you
might be closer with one than another. Before giving unequal gifts
to grandchildren, think about the implications. In some situations,
grandparents choose to do what they want for each grandchild while
they are alive, and then treat children equally in their estate plan.

Evaluate whether a gift is taxable. Under current tax law, a
taxpayer need not pay any gift tax for the first $5.25 million that an
individual gives away in his or her lifetime. However, any gift of more
than $15,000 per year to a single recipient (in 2019) must be reported
on a gift tax return. Two grandparents together can give up to $30,000
per recipient per year. There is no limit, and no reporting is required,
for payments made directly to educational institutions for tuition or to
medical institutions for health care.

Contribute to a 529 plan for each grandchild. Open a 529 plan for
each grandchild, which allows for tax-deferred growth, assuming the
accounts are used entirely to pay for higher education.

Consider trusts in particular cases. Make sure you know your
grandchildren well. Some cannot be trusted to use money wisely, or
for its intended purpose. One option is to give the money in a trust
that’s associated with an incentive. For example, the benefits of the
trust could go to the grandchild after he or she graduates from college.

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