The tail end of the baby boomer generation is turning fifty-five this year and those born in the forties are moving into their seventies. They are setting milestones as they enter this third excelling at all levels. They are also grandparents. Given the relative prosperity of this generation, many are in the position to aid their grandchildren financially. So, what is the smartest way to gift?
If leaving substantial assets, grandparents should consider creating Inheritor’s Trusts for each of child and gift the money to their trust. This will give the grandchildren creditor protection and avoid a guardianship proceeding. Because minors are considered unable to own property in the eyes of the law, gifting them large sums of money may force their parent to become their property management guardian to gain access to the funds.
Another option is to create a custodian account under the Uniform Transfers to Minors Act (“UTMA”). UTMA allows funds to be held by an adult custodian until that grandchild reaches 21 years old at which point the beneficiary is entitled to do anything he or she wishes with the account. The custodian can access the funds prior to the child’s age of majority for limited purposes. Depending of the size of the gift, it may not be wise to give a 21 year old unfettered access to the funds.
Lastly, whenever making gifts to family members recall that any gifts over $15,000 must be reported on a gift tax return in the year following the gift. Any amount of the $15,000 will come off of your estate and gift tax exemption, which will be $11.58 million as of 2020. To the extent that you have gifted more than your allotted exemption, a gift tax will be imposed.