Plymouth MN Estate Planning Blog

Monday, July 1, 2013

Issues to Consider When Gifting to Grandchildren

 

Many grandparents who are financially stable love the idea of making gifts to their grandchildren. However, they are usually not aware of the myriad of issues that surround what they may consider to be a simple gift. If you are considering making a significant gift to a grandchild, you should consult with a qualified attorney to guide you through the myriad of legal and tax issues that are involved in making such gifts.

Making a Lifetime Gift or a Bequest:  Before making a gift, you should consider whether you want to make the gift during your lifetime or leave the gift in your will. If you make the gift as a bequest in your will, you will not experience the joy of seeing your grandchild’s appreciation and use of the gift. However, there’s always the possibility that you will need the money to live on during your lifetime, and in reality, once a gift is made it cannot be taken back. Also, if you anticipate needing Medicaid or other government programs to pay for a nursing home or other benefits at some point in your life, any gifts you make in the prior five years can be considered as part of your assets when determining your eligibility.

What Form Gift Should Take:  You may consider making a gift outright to a grandchild. However, once such a gift is made, you give up control over how the funds can be used. If your grandchild decides to purchase a brand-new sports car or take an extravagant vacation, you will have no legal right to stop the grandchild. The grandchild’s parents could also in some cases access the money without your approval.

You could consider making a gift under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), depending on which state you live in. The accounts are easy to open, but once the grandchild reaches the age of majority, he or she will have unfettered access to the funds. You could also consider depositing money into a 529 plan, which is specifically designed for education purposes. Finally, you could consider establishing a trust with an estate planning attorney, which can be more expensive to set up, but can be customized to fit your needs. Such a trust can provide for spendthrift, divorce and creditor protection while allowing for more flexibility for expenditures such as education or purchase of a first home.

Tax Consequences: If you have a large estate, giving gifts to grandchildren may be a great way to get money out of your estate in order to reduce your future estate tax liability. In 2013, a single person can pass $1 million at death free of Minnesota estate tax, and a couple can pass a combined $2 million without paying Minnesota estate taxes. The federal exemption is much higher but Minnesota imposes a state estate tax after the first million dollars per donor.  In addition, a person can give $14,000 in 2013 to any number of individuals without incurring any gift taxes. A grandparent with 10 grandchildren could give $140,000 per year to all grandchildren (and a married couple could give $280,000), thereby removing that property from his or her estate.


Archived Posts

2017
2016
2015
December
November
October
September
August
July
June
May
April
March
February
January
2014
December
November
October
September
August
July
June
May
April
March
February
January


StoneLAW, PLLC is a boutique law firm that assists clients in Minneapolis, Saint Paul and throughtout the Twin Cities region including Osseo, Hamel, Wayzala, Long Lake, Hopkins and Loretto in Hennepin County, Wright County and Ramsey County.



© 2024 StoneLaw, PLLC
3340B Annapolis Lane N., Plymouth, MN 55447
| Phone: 763-231-7884

Asset Protection | Business Succession Planning | Cabin Trusts | Elder Law / Medicaid Planning | Estate Planning | Estate Planning for High Net Worth Individuals | Guardianships | Planning for Children | Probate & Estate Administration | Special Needs Planning | Trust Administration | Additional Services

Facebook

-
-