Monetary Gifts to the Grandkids: Pitfalls & Possibilities

July 8, 2021 Austin F DuBois

The only thing grandparents love more than giving their grandchildren gifts, are their grandchildren themselves. They revel in being able to help with the excitement of a first car or college tuition, or the promise of establishing a nest egg or helping with a down payment on a new home. Whatever the final investment may be, the initial impulse to give is driven by the kind of love only grandparents possess.

It’s such a selfless act, in fact, that the number one question grandparents ask me about monetary gifts is: Will my grandchild be taxed or penalized when I give them this money?

A Deceptively Simple Answer: “No.”

Making a monetary gift to your grandchild really is as simple as handing them some cash along with a hug. Additionally, I let them know that ‘you likely won’t be penalized either.’

But, when significant cash gifts like these are in the works, I also let them know that it is just as simple to spend a little time with an experienced elder law attorney who will help them identify and navigate the pitfalls and unseen pluses that can come with giving that gift.

The basics of “No.”

Monetary gifts are not considered income, as per the Internal Revenue Code, so there is no tax consequence to the recipient. A grandparent can freely give up to $15,000.00 each year without incurring any tax penalty. Two grandparents can give individual gifts to one recipient, essentially extending that overall tax-free maximum to $30,000.00 each year.

That’s the easy answer. Now…

Understand the Pitfalls

You retain little, if any, control over your gift, anything from the recipient’s personal circumstances to family dynamics, to unexpected illness or an accident can affect how the money is used or misused once it is out of your hands. Again, the giving instinct is generous and kind, but it behooves you and your recipient to consider options that may provide protection, peace of mind, and even increased benefits.

Your monetary gift could affect someone’s Medicaid benefits. If it pushes the overall value of their collected resources above a certain amount, as set by the NYS Department of Health in its latest list of Medicaid limits on resources and income, which you can review here: General Information System message (GIS 20 MA/13). Key takeaway: $15,900 – the “resources” a single person is permitted to have and still be considered eligible for Medicaid. This includes assets from savings, cash, property, etc.

Look for Possibilities

Grandparents don’t want to feel like they are putting conditions on their gift, but it just makes sense to consider managed options when they stand to be a sounder choice for everyone involved. For example, is the recipient a minor? There are numerous benefits to discuss when it comes to setting up a custodial account.

Tuition is a longtime favored cause of the grandparent, and there are tax-advantaged savings plans, often called 529 Accounts to consider. These can be tailored specifically to make sure your gift earmarked for education makes its way to the registrar’s office. Of course, there are more familiar options, like the good old savings bond or setting up an IRA, for ways to arrange your monetary gift that can also be explored.

Minding Your Assets Is Okay

I also want grandparents to know that it is just as easy to protect their assets as it is to share them with the grandkids. Because asset protection is never as simple as a single transfer, we look at your gift situation not just for what’s going to help everyone in the here-and-now, but for the steps we can take now that will leave you with the ability to pivot for changing circumstances down the road. To that end, I am always a huge advocate for setting up a trust.

A well-made trust can help see the intent of your gift realized with far less risk than simply putting the cash in a greeting card. Read a little more about the possibilities this excellent, asset-protecting option to the cash gift delivers in my blog from April.

Grandparents give unconditionally. It’s our job to help them do it prudently. Planning and understanding are key when it comes to making the most of your gift to a grandchild. Let us walk you through the process.