Giving Gifts To Grandchilren – Use A Trust

There are some serious drawbacks to many options for giving gifts to grandchildren. Either there are no tax or estate planning advantages, or you have no control of the funds (or lose control after a certain point), or the money could affect a grandchild’s eligibility for financial aid. An option that overcomes many of these problems involves transferring money into a trust established to benefit a grandchild. We can draft a trust that reflects your express wishes about when the income and principal will be available to the grandchild, and even how the funds will be spent.

Transferring funds into such a trust offers the following benefits:

(1) You can reduce the size of your estate by transferring up to $16,000 (in 2022) into each trust you create for each grandchild. If below $16,000 you do not have to file any Gift Returns to the IRS, if over $16,000 you have to file a Gift Return. However, No gift taxes will be due in connection with the transfers from the person giving the gift or the person receiving the gift (unless over $12.06 million);

(2) Although the trust owns the assets, you control them as trustee and can decide what type of investments to make;

(3) Income earned by the trust from amounts that you’ve deposited may be taxed to you, or the trust pays the taxes (depends how the Trust is set up);

(4) Amounts deposited in trust, and the income earned from those funds, can be used for the benefit of your grandchildren; and

(5) You can provide that the trust can close at any age you specify.

In order to qualify for these benefits, however, certain restrictions apply. These trusts are complex legal documents and should not be set up without the help of an experienced attorney. As a result, the chief downside of such trusts is the cost of establishing and maintaining them, which you should discuss with an attorney before going ahead with a trust.

Finally, you must be totally comfortable with this gift-planning strategy and the amount of money available to you in your estate. In short, you should only make gifts if you feel certain that the amount of funds remaining in your name and the amount of income they will produce will be adequate for your needs

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David Wingate is an estate planning and elder law attorney at Estate and Elder Planning by David Wingate. The Estate and Elder Planning office services clients with powers of attorneys, living wills, Wills, Trusts, Medicaid and asset protection. The Elder Law office has locations in Frederick, Washington and Montgomery Counties, Maryland.

Notice: this Blog is published as a free service of the Estate and Elder Planning by David Wingate. The information is for general informational purposes only and does not constitute legal advice. For specific questions, please consult with one of our experienced attorneys. We encourage you to share this newsletter with anyone you think may be interested.