Best way for grandparents to give money to grandchildren | Barclays (2024)

FAQs

What's the best way to pass money to my grandchildren? ›

If it still doesn't feel right to hand over a large sum at the moment, you could consider a trust, and have a say in how and when the money is used. With changing family dynamics, a trust can provide further options for flexibility and control when making large cash gifts.

You may give each grandchild up to $16,000 a year (in 2022) without having to report the gifts. If you're married, both you and your spouse can make such gifts. For example, a married couple with four grandchildren may give away up to $128,000 a year with no gift tax implications.

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.

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.

Instead of giving them more things to cram into their home, you may be thinking about giving money instead. Although financial gifts can be a great way to provide for your grandchild's future, in some cases your generosity could have unintended tax consequences—or create friction with the child's parents.

Annual gifting exclusion limits

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.

Make a list of your grandkids and split the money evenly between each kid. This is a great way to figure out how much to spend if you don't want to overthink it or you want to be totally fair. For example, if you've got $1000 for 8 grandkids, that works out to around $125 each.

First, determine the type of trust you intend to establish so that you can move forward with the administrative side of setting up your trust fund. Follow it up with identifying the assets to be included, appointing the trustee, choosing beneficiaries, and subsequently drafting and executing the trust document.

On average, grandparents spend between $50 and $100 on birthday presents for each grandchild. Depending, of course, on various factors like how old the child is, finances, and how many grandkids there are in the family. Grandchildren certainly don't come cheap.

The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $17,000 on this form. This is how the IRS will generally become aware of a gift. However, form 709 is not the only way the IRS will know about a gift.

What to write when giving money as a gift? ›

"Include a note to the person that shows that you've given this some thought, and that there's meaning behind it," Swann says. "If they're an avid gardener or into sports, you could say, 'Here's to your next golf game,' or 'Here's a little something to help you as you expand your garden.

Giving money directly to your dependent children also is exempt from the gift tax. “You can give money to your minor children with a Uniform Gifts to Minors Account (UGMA) or a Uniform Transfer to Minors Account (UTMA), but you have less control over what they do with the money when they come of age," said Goldman.

The Biggest Mistake When Setting Up a Trust Fund

The answer may surprise you as it could be easily avoided: lack of proper planning. Trusts can be complex with lots of moving pieces, which means you need to consider all aspects of how they are set up and how they will function in the future.

Gifting money to your grandchildren is a great way to help them get set up for later life. But gifting large sums of money at the wrong time can see a large chunk of the gift subject to a heavy tax burden.

In 2022, the annual IRS gift tax limit is $16,000 per person per year. That means you could gift up to $16,000 to five different grandchildren in a single year without having to even report it on your taxes. This works similarly if you're married.

Revocable Living Trust

This type of trust will hold designated assets intended for grandchildren and allow you to name a trustee that you feel confident will manage and protect the assets for the trust's duration.

A JISA is a popular option for grandparents, but explore other options such as a child's trust, premium bonds, and other investment accounts.

Staging the Inheritance

Some estate plans release parts of an inheritance at different ages, like giving one-third at age 25, another third at age 30, and the final third at age 35 or 40. This method lets the inheritor mature in their financial management skills over time.