The Best Ways to Give Money to Your Grandchildren
If you have grandchildren you can give them funds that can actually help them while teaching them about the importance of saving. By looking at certain ways on how you can provide them with gifts, you can avoid certain tax implications and perhaps give your loved ones a lesson on financial management.
Here are some of the best ways you can achieve these goals.
You can give money to anyone, including your grandchildren, without incurring the federal gift tax so long as no one individual receives more than $14,000, or $28,000 if the funds are from a couple. These payments can be made annually. The grandchildren can use the funds in whatever manner they wish. Funds in this amount or less can be made for years without penalty.
Open a 529 Account
Higher education is as expensive as ever and costs are not going down anytime soon. A 529 account is designed to pay for college tuition and costs such as room and board and student activities fees.
All earnings and capital gains in these accounts are not taxed. Massachusetts allows you to deduct up to $1000 per year for contributions to the plan or $2000 by a married couple. Although you can trigger the gift tax if your payments exceed $14,000 or $28,000 if you are a couple, federal tax law will allow you to make lump sum contributions of up to $70,000 if spread evenly over 5 years provided no other gifts are made to the same beneficiary over this period.
If you have a sizable estate that is subject to estate taxes, these contributions can reduce your taxable estate.
Pay Their College Tuition
If your estate planning lawyer gives the okay, then you could also pay your grandchild’s college tuition directly. Your contributions can be unlimited without any tax consequences. The funds can only be for tuition and not for books, room and board or any other associated costs.
Medical Bill Expenses
If your child has unusual medical expenses, you are permitted to pay the costs without gift tax implications regardless of the amount paid. The fees must go directly to the medical insurance company, hospital or health care provider. This can include orthodontia work, treatments for an injury or illness or anything else that is medical-related.
Open an IRA for Them
Setting up an IRA for you grandchildren is an excellent way of teaching them to save. You can contribute to the maximum amount each year until they are out of school and employed or have them contribute a percentage of what they earn from summer jobs.
Give them a Loan
Fiscal responsibility can be learned by giving your grandchild a loan for a car, computer, down payment on a home or other item. Have your grandchild pay back the loan at a set amount each month. If the funds are for certain costs, he or she can provide receipts to you for how the money was spent.
You can set up an account to make gifts pursuant to the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act. You can control all the money that comes from the account. Interest over $2000 per year in the account is taxable at your current tax rate that the child is liable for. The accounts may last until the child turns 21.
All of the above options may or may not jeopardize your ability to receive government benefits for long term medical care. It is extremely import to discuss any gifting with an Elder Law Attorney PRIOR to any gifting you do to anyone.
For any plan on gifting money, talk to Elder Law and Estate Planning lawyer Patricia Bloom-McDonald with an office in Westport and Canton, Massachusetts. Attorney Bloom-McDonald has been in the legal field and working with retired individuals for over 25 years in the areas of estate planning, probate, and elder law. Her initial one-hour consultation is always complimentary. You can reach her at 508-646-9888 or 781-713-4709 or through her website at www.McBloomLaw.com.