Jamie Seim, CFP, recently sent me a monthly newsletter published by Wells Fargo Advisors. Jamie Seim is a Wells Fargo Advisor in Ponte Vedra Beach, Florida. One of the articles, Smart Giving to Grandchildren, by Rachel Hartman caught my attention.
“$41 trillion in assets will be transferred between generations in the next 50 years”
Before taking steps to aid a grandchild’s education, medical expenses, business or even future home, you’ll want to consider key financial factors. ( Deborah P. Lauer, Wealth Planning Strategist for Wells Fargo Advisors)
- Survey the Situation
- Take a close look at your own financial plan.
- Can you afford giving the gifts?
- Do you have what you need?
- Living Expenses
- Medical fees
- Lifestyle choices
- Charitable giving
Be sure to analyze your annual and long-term budget with your Financial Advisor. If you are retired, check how the gift-giving fits into your plan. If you are still working, you can make adjustments in your gifting program as you save for retirement.
- Set a Vision for the Gift
- What do you want to accomplish with the gifts?
- Do you want to make a substantial one-time financial gift?
- Would a recurring present, a set amount given every six months or year to each grandchild, be more manageable? It can be built into an annual budget.
- Consider Specific Implications
Be sure to consult with both your Financial Advisor and your tax advisor to keep the following tax strategies and gift options in mind as you plan your gifting method.
- As a grandparent, you can give up to $14,000 outright (as of 2016) to each grandchild every year without having to pay a gift tax. This type of gift is called an annual exclusion gift.
- During your lifetime, in addition to the annual exclusion gift, you can give away a total of $5.45 million (in 2016, indexed to inflation) before gift tax is owed. Annual gifts of $14,000 or less do not count against this exclusion figure.
- If your grandchild is enrolled in a school where there is a tuition bill, you can write a check directly to the institution. This tuition exclusion gift does not count toward the previously noted gift limits.
- Similarly, a gift to pay for medical expenses can be made directly to the hospital or doctor without counting toward the annual or lifetime exclusion amounts.
- Establishing an irrevocable gifting trust with the help of an estate planning attorney may help pay for future educational expenses, fund vacations, help fund the purchase of a home, or serve as a financial safety net for children when they are older.
- Talk to the Family
Remember that while the major beneficiary of the gift is the grandchild, other family members are impacted by your actions. It is important that parents are included in the conversations.
While passing on wealth can take many forms, giving gifts to grandchildren offer substantial benefits. First and perhaps foremost, it provides you the chance to see the results of your giving.