Houston Estate Planning and Probate Blog

Monday, July 3, 2017

Issues to Consider When Gifting to Grandchildren

Issues to Consider When Gifting to Grandchildren

Grandparents, Aunts, Uncles, or others who want to give gifts to their grandchildren, nieces, nephews, etc. may not be aware of a few issues related to what many consider to be a simple gift. If you are considering making a significant gift to a child, you should consult with a qualified attorney to guide you through the legal and tax issues that are involved.

Making a Lifetime Gift or a Bequest:  Before making a gift, you should consider whether you want to make the gift during your lifetime or leave the gift in your Will. If you make the gift as a bequest in your Will, they will receive the gift upon your death. If you give the gift before you die, there’s always the possibility that you will need that money to live on during your lifetime. If you anticipate needing Medicaid or other government programs to pay for a nursing home or other benefits at some point in your life, you should know that any gifts you make in the prior five years can be considered as part of your assets when determining your eligibility.

What Form Gifts Should Take:  You can make an outright gift in which the recipient has total control and can buy or do whatsoever they want with the money.

You can make a gift under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), depending on which state you live in. You would establish an easy to open account in the child's name with an adult custodian of the account and once the child reaches the age of majority, he or she will have unfettered access to the funds.

You also may deposit money into a 529 plan, which is specifically designed for education purposes.

You may consider establishing a trust with an estate planning attorney that you can customize according to your wishes as to how the child is to receive the gift. Such a trust can provide for spendthrift, divorce and creditor protection while, if you like, allowing for more flexibility for expenditures such as education or purchase of a first home.

Tax Consequences: If you have a large estate, giving gifts to grandchildren may be a great way to get money out of your estate in order to reduce your future estate tax liability. In 2017, a single person can pass $5,490,000 at death free of estate tax, and a couple can pass a combined $10,980,000 without paying estate taxes. In addition, a person can give $14,000 in 2017 to any number of individuals without incurring any gift taxes. A grandparent with 10 grandchildren could give $140,000 per year to all grandchildren (and a married couple could give $280,000), thereby removing that property from his or her estate.

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