Grandparents should give thoughtfully and strategically to their grandchildren.
The bond between grandparents and grandchildren can be truly special.
While many grandparents provide love, encouragement, and examples of stronger character to their grandchildren, many also want to provide financial support as well.
Grandparents often delight in providing for daily needs, contributing to milestones, or helping to fund education.
According to AARP, this urge to provide financially may have negative consequences when not done strategically.
Grandparents should give strategically to grandchildren to provide support while also protecting their own financial security.
Spending beyond your means does not simply relate to purchasing a new boat.
It can also include gifting.
Although grandparents often have intense desires to help grandchildren purchase their first home or pay for college, finances do not always allow for this.
Grandparents should review whether they are able to provide these monetary gifts and still comfortably take care of their current and growing needs in retirement.
In addition to simply gifting beyond capacity, a variety of other mistakes are common when trying to support grandchildren financially.
What are they?
If a grandchild asks you to co-sign a loan for their education, car, or other need, do not agree immediately.
Although it may sound harmless to your bank account because you are not providing funds upfront, you will be on the hook for any missed payments.
If your grandchild cannot make payments, your credit score will take a hit.
You will also be required to satisfy the debt.
Yikes!
In short, serving as a co-signer is a risky move.
An alternative route would be contributing small amounts toward the loan without taking on the heightened risks of co-signing.
Many people tend to value fairness.
When grandparents give to certain grandchildren rather than others, it will be perceived as favoritism.
And rightfully so!
To minimize lasting discord between loved ones, striving for equitable distributions by households can be helpful.
You can minimize misunderstandings and conflict by acting transparently and sharing your reasons for decisions.
This may require the assistance of an estate planning attorney to help find creative solutions to ensure family fairness to all households, children, and grandchildren.
Failing to consider tax law when making gifts can lead to the government becoming a collateral beneficiary of your generosity.
What strategies can you implement to avoid unintended taxes?
Do not gift more than the annual gift tax exclusion amount.
In 2025, the IRS will allow people to make gifts to others up to $19,000 per recipient without leading to federal gift tax consequences.
If you give money to others above this amount, you will likely need to file a gift tax return or face other tax liabilities.
By understanding these limitations, you can make more strategic gifts.
Other tax-efficient gifting options include making direct payments to medical providers for expenses or making contributions to 529 college savings plans.
Giving away money to others indiscriminately can negatively impact your estate planning goals.
Grandparents may find themselves having accidentally interfered with their plans or having unintentionally disinherited heirs.
Yikes!
Neglecting proper documentation can lead to longstanding family conflicts.
Grandparents should work with an experienced estate planning attorney to create a comprehensive estate plan where giving to their grandchildren while they are alive aligns with inheritance planning.
It is possible to minimize financial blunders with careful planning.
What strategies should you consider?
You should evaluate your needs to protect your financial security and determine what you can afford to give your grandchildren.
When you have a number, make plans for how to treat your grandchildren fairly in your contributions.
Making payments directly to providers for medical expenses or making contributions to 529 plans or other tax-advantaged accounts can minimize tax complications.
Working with an experienced estate planning attorney will help you align your gifting with your long-term estate planning goals.
Having open and transparent conversations with your loved ones can help them understand your financial capabilities and gifting goals.
It can also ensure your children and grandchildren have clarity on your financial support while promoting family bonds and avoiding discord.
Although providing financial support for grandchildren can be rewarding for grandparents, it cannot be done to the detriment of the financial stability of the grandparents.
Taking a proactive and thoughtful approach to gifting can help you maximize your generosity, promote family welfare, and preserve your own financial security.
Knowing what you can give and adhering to your budget can help you protect your financial security.
Co-signing rather than providing direct gifts opens grandparents up to greater risks.
Gifting with fairness in mind helps you to avoid the perception of favoritism and the triggering of family conflict.
By strategically gifting under the annual gift tax threshold or making contributions to 529 plans, grandparents can avoid unindented tax consequences.
Although lifetime giving is a beneficial estate planning strategy, it must align with your comprehensive estate plan in order to be optimally effective.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
Reference: AARP (Nov. 11, 2024) “The 5 Worst Mistakes Grandparents Can Make with Money”
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