Grandchildren are one of the biggest joys of life, especially as you enter your senior years. Providing financial support to your grandchildren can be very rewarding and may be included in your Massachusetts estate plan. The key is selecting the right means of doing so. Here are a few options and considerations for gifting money to grandchildren.
Options for Gifting Money to Grandchildren
A certain amount of cash gifts to family members are exempt from taxes. For 2019, that amount is $15,000. Each grandparent can gift up to that amount to the same grandchild. So, a married couple can technically gift up to $30,000 for the year, tax-free. Gifts in excess of these amounts could have gift tax implications to the grandparent(s).
For grandchildren who may be attending college, it is possible to establish and fund a 529 plan. This plan covers higher education costs. The funds are invested in mutual funds and have the ability to grow. Amounts contributed are tax-free. Furthermore, Massachusetts offers a tax deduction of $1,000 for single filers and $2,000 for joint filers for in-state 529 Plans. These plans are ideal since the funds are saved for a very specific purpose.
Wills & Trusts
It is also possible to gift money to grandchildren in a will and/or trust. When structured properly, trusts can minimize tax burdens. They can also provide structure and/or limitations for when and how the funds may be used. This can be helpful for minors.
Which Option is Right for You
There are pros and cons to each method of gifting money to grandchildren, specifically as it relates access to funds, use of funds, and taxes. Before creating a gifting plan, be sure to budget properly. You should retain enough funds to support your own living expenses and ongoing needs. Consider whether your grandchildren are mature enough to manage funds gifted to them and whether a structured approach is more appropriate. Lastly, weigh those factors against the tax implications or tax savings of each option, to maximize the value of your gifts. Consult with a Massachusetts Estate Planning Attorney to evaluate your options and receive guidance on which makes the most sense given your finances, retirement plans, and grandchildren. At Simmons and Schiavo, we take the time to understand your circumstances and preferences, and provide the resources and guidance to help you make smart decisions on gifting money to grandchildren and other estate planning matters. Contact us today!