The best ways of gifting money to grandchildren (2024)

FAQs

What are the rules on gifting money to grandchildren? ›

In 2023, you could gift anyone up to $17,000 per year tax-free—this is known as the annual gift tax exclusion and is set each year by the IRS . You won't have to pay a gift tax on funds at or below this amount, and it won't add to their taxable income. This amount is per grandchild.

Gifting money to grandchildren can be an excellent way of reducing a looming inheritance tax liability – but not everyone has to pay the dreaded bill. Inheritance tax is charged on the value of your estate – that's the value of your property and your wealth – when you die.

Trusts can be especially beneficial for minor grandchildren, as they allow more control of the assets, even after your death. By setting up a trust, you can state how you want the money you leave to your grandchildren to be managed, the circ*mstances under which it can be distributed, and when it should be withheld.

The everyday option: a children's saving account

Some children's accounts have a distinctly higher interest rate than ordinary accounts. Opening a savings account for grandchildren at a local bank or building society is a good way to start teaching them the financial facts of life.

While tax-free annual exclusion gifts and medical and educational payments are typically made to children and grandchildren, the same tax rules apply to gifts and payment for the benefit of other people, including children-in-law and grandchildren-in-law, parents, friends and other family members.

Annual gifting exclusion limits

This is known as the annual exclusion. For 2023, the annual limit per recipient is $17,000 and for 2024 it's $18,000. In other words, you can give up to annual limit per grandchild without worrying about tax implications or filing a gift tax return.

Estate planning tools like wills and trusts are the best options for leaving money to your children because you can outline how and when your children will receive the money. If the child is a minor, you can even dictate how they can spend the money.

Bottom line: There's no hard-and-fast rule on how much cash to give as a wedding gift. Wedding experts do, however, advise starting at $100. From there, you may want to adjust up to $500 based on factors such as your relationship with the couple, your budget and the cost of your attendance at the wedding.

Reducing potential taxes with gifts

For smaller gifts, the IRS rules for 2024 allow any individual to gift up to $18,000 per year to any recipient without having to consider the potential impact of a taxable gift. A married couple may give up to $36,000 to any individual.

Anyone can open a 529 savings account on behalf of a beneficiary, but typically they're opened by parents or grandparents. The funds in the account grow tax-deferred and, as long as the funds are used for qualified educational expenses, such as tuition, books, supplies and room and board, withdrawals are tax-free.

Should grandparents give grandchildren money? ›

Transferring property while you're still alive lets you enjoy seeing first-hand your grandchildren benefit from your gift. It could also help from a tax-planning perspective. First, there's a $17,000 a year gift you can make to each grandchild without it counting against the lifetime limit of the estate tax credit.

Special Needs Trust

This type of trust protects your grandchild and provides supplemental distribution of assets for their needs while also avoiding the possibility of jeopardizing government-provided program benefits, such as Medicaid and SSI.

Opening a financial account requires personal information. To open one on your grandchild's behalf, you will need their full name, birthday, complete address, phone number and Social Security number. Plus, you will submit the same details regarding yourself or another adult, like a parent, who will oversee the account.

Youth or Children's Savings Account

They often offer enhanced interest rates, lower monthly fees, and limited minimum balance requirements. Youth banking provides an excellent opportunity to teach your grandchild valuable lessons about money management, savings, and responsible financial behavior from an early age.

Do grandchildren have a right to inheritance? Generally, grandchildren may receive an inheritance if they are explicitly mentioned in the will or if they are the designated beneficiaries of certain assets.

A gift tax is a government tax imposed on those who give money or property to others in exchange for nothing (or less than total value). There is typically a tax-free gift limit to family members until a donation exceeds $15,000 (jumping up to $16,000 in 2022). In these instances, the IRS is usually uninvolved.

The total value of gifts the individual gave to at least one person (other than his or her spouse) is more than the annual exclusion amount for the year. The annual exclusion amount for 2023 is $17,000 and for 2024 is $18,000.