They say having grandchildren is all the fun of having kids without exhaustion. Maybe that’s why many grandparents often look for ways to give financial gifts to grandkids. In addition to providing a financial cushion for grandkids, you can also benefit from giving gifts by reducing your estate size and the amount of tax your family will need to pay upon your death.
If you want to give money to grandkids but aren’t sure how here are 5 long-term ways to gift money to grandkids that can have an impact now and in the future.
Set Up a Trust
A trust is a flexible way to gift money to grandchildren over the long term. Depending on the parameters of the trust, grandparents can decide to release funds at a key milestone, like high school or college graduation, age 30, or when the grandchild has their first child.
The major benefit of trust is that it ensures your desires are fulfilled, even after you’re gone. You can designate when the grandchild receives money and circumstances in which it should be kept in the account too.
Consider Whole Life Insurance
Another way to gift money for grandkids is through a life insurance policy, and there are two ways to do it. You can set up a policy with you as the insured and a grandchild as the beneficiary, or provided permission from the parents is obtained, set up a whole life insurance policy with the grandchild as insured.
The beauty of a whole life insurance policy is that if you’re the insured, it offers a permanent death benefit payout as long as the policy remains in place. In the second scenario with the grandchild as the insured, you’re guaranteeing your grandchild’s insurability as well as fixed, low premiums.
Open a College Savings Account
If you anticipate grandchildren wanting to pursue higher education in the future, college savings account like a 529 plan is a great way to gift money to be used for those expenses. In some states, grandparents’ contributions may even be tax-deductible. Plus, if that particular grandchild decides not to go to school, you can easily transfer the account to benefit another grandchild instead.
Give Them Cash
In 2022, you can gift up to $16,000 to each grandchild without having to report the gifts on a tax form. If you’re married, the limit of $16,000 applies to each spouse, meaning a single grandchild could receive $32,000 tax-free yearly.
The nice thing about an outright cash gift is that it’s not taxed on either side, meaning grandkids won’t need to report the gift as taxable income either. Plus, they can use it for any purpose, whether they want to buy a house, travel, or pay for school.
Gift Financial Education
Financial literacy is the gift that keeps on giving. If you’re looking for a way to increase your grandchildren’s chances of long-term financial success, education may be the best move.
Whether online or in-person, look for courses that teach grandchildren basic financial skills like budgeting, saving, and investing. That way, when they start earning money, your grandchildren will know how to make it work for them.
The Bottom Line
Gifting money to your grandchildren is a great way to offer them a leg up in life. But before you give money, it’s best to determine your intentions and goals. For example, if you want the money to serve a specific purpose, a trust or 529 plan may be your best bet. On the other hand, cash may be better if you want to give money more generally for any purpose.
However, you choose to gift, investing in the future of your family will always be rewarding.
