From Gifts to Trusts: How Grandparents Can Invest in Their Grandchildren’s Future

For many grandparents, grandchildren are a delight and a treasure with whom they share a special bond and even special traditions. They are the future, the next generation, the legacy bearers of the family, and many grandparents want to ensure that their grandchildren are financially secure.

Planning for your grandchildren’s future can take many forms, and there are benefits and draw backs to the ways in which you can provide for them. Let’s take a look at a few of these ways. 

1. An outright gift.

As of 2024, the IRS allows you to give up to $18,000 per year to any individual without having to report it ($36,000 if you’re married and it’s gifted by both spouses).  There are any number of ways this can be helpful to your grandchildren, but you want to be sure that everyone involved understands the exact nature of the gift and the effect of gifting on your overall plan and the recipient. Is it a true gift?Is it an advance on a future inheritance? Is it actually a loan? Having proper documentation in place is necessary to ensure that your wishes are made clear. Also consider any public benefits your grandchild may need to preserve. Will the gift make you or your grandchild ineligible for Supplemental Social Security or Medicaid assistance? Gifting can have unintended, damaging consequences so it’s best to discuss it with an experienced elder law attorney who is able to advise you about the strategic use of your assets in an overall plan over time.

2. A trust.

Trusts can be the easiest way to ensure your wishes get followed, and make that assurance far simpler than what might otherwise occur. Trusts can protect your assets and leverage their value, and give peace of mind should you get ill for a long period of time. They can also simplify helping a grandchild go to college, purchase a home, etc., after your death and avoid ongoing probate reporting costs.

3. A 529 or Qualified Tuition plan.

This plan lets you reduce your taxable estate by earmarking funds exclusively for education. Earnings and distributions from the investments are tax-free, provided they are used for educational expenses. In addition to college, a 529 plan can be used for any post-secondary education program, as well as for elementary or secondary schools.

There are many ways in which you can provide for your grandchildren, but keep in mind that they are not the only ones you need to consider when planning for their futures. You also need to keep yourself and your own needs in mind. Don’t give away so much that you don’t leave enough to take care of yourself or your spouse in an unpredictable future. Keep in mind your potential long-term needs, including the possibility of long-term care. Statistically, it’s highly likely you’ll need it. The gifts you give your grandchildren could make you and your spouse incur a penalty period before being able to access Medicaid assistance, so it’s crucial to consider the best way to gift and plan. Gifting needs to be done with the legal advice of an elder law attorney with extensive experience in all factors of planning for the second half of life.

Grandchildren are wonderful. As grandparents, you want to know that they will be cared for,especially in today’s world where the challenges ahead are far more complex than those kids faced 30 years ago. Be sure to consult with experienced professionals before making any major decisions that will impact your financial situation and security,including certified elder law attorneys who can help you navigate the waters of elder law and develop a plan to care for the ones you love.