Ask just about any grandparent and they will confirm that it is their right to spoil their grandchildren. But, when it comes to financial gifts, it is important to have a plan.
Giving a one-time large gift to a grandchild may ultimately end up costing them money, or at the very least reducing the amount of money that you intended them to have. Knowing the pitfalls in estate and gift taxes may not only increase the amount given to younger generations, but may even benefit the grandparent’s bottom line.
If you do want to help your grandchildren, consult an estate planning professional about how to make annual gifts up to the amount allowed by gift taxes. Making loans instead of gifts may have favorable results as may putting funds into investments that allow periodic withdrawals without incurring tax liabilities. Many options are available but with tax laws changing constantly, it is important to ask a professional about any unintended consequences.
Whatever your motivation as a grandparent, whether trying to help your grandchildren save for the future, help them go to college, or some other reason, the important thing is to make sure that the gift benefits everyone. Minimize any penalties to the recipient and reap any benefits that may be available when making the gift. Remember that tax and other consequences and even benefits may vary from state to state, or even based upon the age of the parties. Make sure to consult a qualified estate planning attorney before making any decision about gifts of money or highly-valued assets.