The Grandparent’s Guide to Gifting Money to Grandchildren

If you’re a grandparent and your finances are solid, you may be in a good position to gift money to your grandchildren. And the right gifts will keep giving for years to come. Here are some ways your generosity can help build security and prosperity for your grandkids.

Give Money Directly

You can give each grandchild $18,000 a year or $36,000 as a married couple without having to pay the federal gift tax. Making cash gifts while you’re alive will lower the value of your estate, potentially lowering the tax bill after you pass. 

Invest in a College Fund

You can contribute to a 529 plan for your grandchild, and that money will grow free from federal or state taxes. 

In the past, money from a grandparent’s 529 account would reduce the amount of financial aid your grandchild might qualify for by up to 50%. But a new, simpler Free Application for Federal Student Aid (FAFSA) doesn’t require students to report gifts or contributions from 529 plans owned by grandparents. 

There are a couple of things to keep in mind. First, many private colleges and universities use the CSS Profile for awarding financial aid, and that system considers a grandparent’s 529 plans. Second, if you contribute more than $18,000 to a grandchild ($36,000 as a married couple) per year, you may owe federal gift taxes.

Add Your Grandchildren to Your Will or Trust

You can add your grandchildren to your will and give them either a fixed amount or a percent of your estate. Setting up a trust for your grandkids may give them lower tax options and may also give you more control over how and when they can use the funds. You can:

• Set guidelines for how they should use the money.
• Help them meet goals like paying for college or buying a home.
• Distribute funds when they reach certain ages or milestones like graduating from college or getting married.

You’ll want to talk through the different trust options with your financial planner and attorney to make sure you set up any trusts the way that works best for you and your family. Some types of trusts are irrevocable, so once they’re in place, you can’t change your mind.

Gift Life Insurance

You could choose to buy life insurance policies for your grandchildren with their parent’s permission. Life insurance isn’t just for financial protection in case a loved one passes away. Whole life insurance can be an investment that grows over time, and your grandchildren may be able to use it to pay for major life expenses.

Some policies may cover children with no medical exam required, and once you have a policy in place, your grandchild may be able to keep it for their entire life. However, you’ll want to consider how your grandchild will pay for their premiums after your passing, as well as explore other investments. Options like 529 plans might give you higher returns.

Connect With an Expert Who Can Help You Build Your Legacy

Giving monetary gifts to your grandchildren will have tax and financial implications for you, your grandchildren, and, in some cases, their parents. Deciding when and how to make financial gifts can be complicated. 

A professional can help you sort through your options and choose what’s best for your family. Reach out to a Farm Bureau financial advisor for guidance every step of the way.