The best ways of gifting money to grandchildren (2024)

FAQs

How do you gift money to a grandchild? ›

You can make gifts to a custodial account that parents can establish for a minor child. You can transfer money into a trust established to benefit a grandchild. You can reduce your taxable estate while earmarking funds for the higher education of a grandchild through the use of a “529 account.”

A trust can also be an effective tool for transferring assets to an adult grandchild, while reducing estate taxes and allowing your influence on the assets even after you have passed away.

Like a 529 plan, a Coverdell education savings account (ESA) allows you to invest money, use it for qualifying college or K-12 expenses and pay no taxes on gains. You can open a Coverdell ESA at brokerages and other financial institutions for minor grandchildren.

So, how much can you gift to your grandchildren tax-free? Each grandparent can gift up to £3,000 in any one tax year, exempt from IHT. If the whole £3,000 is not used in any single tax year, the balance can be carried forward to the next tax year.

If you are interested in leaving a smaller amount of money and are not overly concerned with how quickly it is used, 529 plans or UTMA accounts are a good option. You could set up a college savings plan for your grandchildren using a 529 plan. Another option is to leave your IRA to your children.

While grandparents can pay into accounts such as a junior Isa or junior Sipp, you usually have to be a parent or legal guardian to open one. The exception could be a junior investment account. In such an account, assets are held in trust for a child until they turn 18.

Give now or later: The IRS doesn't care

For tax purposes, the timing of your generosity makes little difference if your family is not likely to be subject to estate taxes. The U.S. tax code makes it fairly easy to give your children money, stocks or other investments or a piece of the family business.

In 2023, you could gift anyone up to $17,000 per year tax-free—this is known as the annual gift tax exclusion and is set each year by the IRS . You won't have to pay a gift tax on funds at or below this amount, and it won't add to their taxable income. This amount is per grandchild.

Is it normal for grandparents to leave money to grandchildren? ›

Inheritances usually go to grandchildren.

Many grandparents attempt to pass down generational wealth to their grandchildren, but not everyone can save enough money.

If you're looking to save money for your grandkids, at the moment, Junior ISAs generally offer the best return, plus they have tax-free advantages. Junior ISAs and other options are available from brands like Moneyfarm, Interactive Investor, Hargreaves Lansdown, and &me.

Depending on the type of savings account, a grandparent can open a savings account for their grandchild. In most cases, you'll need to provide the child's birth certificate to set up the account, though the documentation required will depend on the account provider.

You can open a savings account for a grandchild today

Savings accounts for grandchildren can help support the next generation, as well as their parents, while also teaching your grandchild about the value of money. Open an online savings account for your grandchild today to help prepare them for financial independence.

Maternal grandparents and maternal grandmothers (MGMs) in particular consistently show the highest levels of investment (e.g. time, care and resources) in their grandchildren.

Annual gifting exclusion limits

This is known as the annual exclusion. For 2024, the annual limit per recipient is $18,000. In other words, you can give up to annual limit per grandchild without worrying about tax implications or filing a gift tax return.

You must submit a gift tax return if you present more than $15,000 in cash or assets (for example, stocks, land, or a new automobile) to any one individual in a year. This condition does not imply that you must pay a gift tax. It simply means that you must complete IRS Form 709 to report the gift.