Gifting to Grandchildren
by Credit.com
Passing on money to children and grandchildren is not only a nice thing to
do; it can also help you reduce your estate taxes. In this article, Credit.com
shows you the best ways to use Generation Skipping Transfers and Gift Tax
Exclusions.
Tip: Use the Gift Tax Exclusion
You can give each grandchild up to $12,000 tax-free every year under the current
tax law. Married couples can both make such a gift to each grandchild once
a year. This tax exemption includes gifts toward a 529
savings plan, a custodial account, or plain old cash. These gifts are not
counted as taxable income to your grandchildren and do not count toward the
lifetime $1 million gift tax exemption limit. The best way to make these contributions
is directly into a gift trust set up with the help of an attorney.
Tip: Pay medical expenses or tuition directly
Consider paying for a grandchild's college tuition directly as a way to save
on taxes. Education costs and medical expenses are tax-exempt. Just keep
in mind that you'll need to pay the university or health care provider
directly in order to get the tax benefit.
Tip: Donate to a custodial account
Under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to
Minors Act (UTMA), you can make gifts to a custodial account set up by
parents of a child under 18. Gifts to a custodial account are counted as
taxable income to the grandchild, however. You can gift cash, investments,
real estate, and more through these accounts. Speak to an investment advisor
before opening this kind of account, as there are a few potential traps
to avoid.
Tip: Consider a Generation-Skipping Transfer
IRS form 706 allows grandparents to transfer up to $1 million (or $2 million
for a couple) to grandchildren without any estate taxes. GST trusts also
allow you to split the money between grandchildren.
Tip: Don't forget Savings Bonds
Savings Bonds are the most popular type of security in the world for a reason!
Bonds are free from most taxes and increase in value monthly. Plus, you
can receive extra benefits if the bond is redeemed to pay for college expenses.
You can compare different kinds of bonds online at SavingsBonds.gov.
Return to Top
|
