Gifts to grandkids of different ages

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GeraniumLover
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Gifts to grandkids of different ages

Post by GeraniumLover » Sat Apr 14, 2018 3:33 pm

My in-laws have been making annual exclusion gifts to their 5 grandkids in the form of contributions to 529 plans. The oldest child is finishing his junior year in college and there are already enough 529/Educational IRA assets to cover his last year; he will probably not go to grad school, at least for the next several years. The in-laws' objective was to cover the college expenses of all of their grandkids. That will likely be the case for the 3 youngest, but ours are significantly older and my parents and us already saved quite a bit before this round of gifting began a few years ago. The in-laws seem happy enough to continue gifting to the older two grandkids as they contribute to the younger ones' 529 plans but we, as parents, aren't very keen on them getting these gifts ($30k/yr) outright, and the in-laws seem a little hesitant about that as well.

We would prefer not to put the gifts into trusts (due to costs/complexity). One idea we are kicking around is having the kids deposit their checks into joint accounts with my wife as the joint account holder. Two issues with this approach are: (1) they could legally withdraw/spend the entire amount at any time (if/when they figure that out) and (2) while in the joint account, we'd be on the hook for taxes on half the income generated. We are also considering telling them that we will transfer some of the money into their personal account and a Roth IRA account each year to match their earnings (subject to the cap for Roth contributions). We may also reimburse ourselves for some of the educational expenses we incurred due to the late timing of these gifts vis-à-vis the other grandkids (whose parents will not have to go out-of-pocket).

Are there other vehicles that may make sense to use, other than joint accounts and trusts, that will allow us some level of oversight/control over our kids' use of these funds?

What would other folks do in our situation?

NotWhoYouThink
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Re: Gifts to grandkids of different ages

Post by NotWhoYouThink » Sat Apr 14, 2018 3:46 pm

You and they need to figure out whether these gifts are to cover the costs of college or whether they are just unrestricted gifts. If they are to cover the costs of college, then your in-laws should give to you and your spouse instead of giving to your kids, since you already paid for college.

If they are unrestricted gifts to the kids that you don't want the kids to have yet, they could consider putting the money in separate POD accounts for each kid, even though that would not take advantage of the gift exclusion. Then when they decide the kids are old enough to manage the money themselves, they could start giving, either all at once or with whatever gift exclusion is in place at the time.

GeraniumLover
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Re: Gifts to grandkids of different ages

Post by GeraniumLover » Sat Apr 14, 2018 3:53 pm

NotWhoYouThink wrote:
Sat Apr 14, 2018 3:46 pm
You and they need to figure out whether these gifts are to cover the costs of college or whether they are just unrestricted gifts. If they are to cover the costs of college, then your in-laws should give to you and your spouse instead of giving to your kids, since you already paid for college.
They are also paying annual exclusion gifts to my wife and me. They are trying to reduce their taxable estates, so they want to make exclusion gifts to all the grandkids. First priority is that the gifts to the grandkids be for education, which is why they have been making them into 529 accounts. If they make our kids' payments to my wife and me, they will be over the $15k/each annual cap for us, and will have not used it for our two kids. Putting the funds in POD accounts also doesn't remove the funds from their estates.

I realize that this is a *good* problem to have!

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BL
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Re: Gifts to grandkids of different ages

Post by BL » Sat Apr 14, 2018 4:11 pm

Perhaps you can suggest they put 5500 into Roth IRA and set aside 18.5k to live on while they put 18.5k of their wages into a 401k. That would leave about 6k for spending, investing, or saving for travel,etc.

I don't think you should get fancy about taking over their money as it is theirs, not yours. It probably isn't even legal to take over someone else's money. Also don't think you should consider taking back some for the college money you spent. Things don't always turn out "fair", and that is alright. As a grandparent, it seems fair to me, even though it does not to you. The other kids won't have any cash from them when they get out of school, and they may not think that is "fair" either. The 529 is theirs to use for education for themselves or perhaps their children (what a wonderful thing to have your kid's education costs taken care of right away!).

If they take it out later and pay the tax, so be it. If they use it to add to 401k, then tax is off-set. If they spend it for a car, wedding, etc., that is good. Sure, they might blow it, but that is a lesson as well.

Be careful not to offend the grandparents, as they may decide not to give to your kids if you are objecting to it. Be careful what you wish for.

I assume they are looking at the new tax law on estates:
So, a couple could exclude $22.4 million for 2018.
from Forbes. https://www.forbes.com/sites/ashleaebel ... 7654b61d54

NotWhoYouThink
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Re: Gifts to grandkids of different ages

Post by NotWhoYouThink » Sat Apr 14, 2018 6:08 pm

You say the goals are to get the money out of your in-laws' estate, and to pay for college. Do they know that you and your parents had already paid for college? What about the other grandkids - do their parents and other grandparents have the willingness and ability to pay for college without this money? It just seems like there is a potential for a feeling of unfairness if:
- Grandkids A and B got college paid for by parents and paternal grandparents, then Gift Granny gave them extra money
- Grandkids C, D and E got college paid for by Gift Granny, saving their parents money but not giving an extra boost to A, B, C

I wouldn't put the money in a joint account with the kids. That makes it look too much like your in-laws giving more than $15k/year to you and your wife, but hiding the gift by routing the money through your kids.

I would try to get your wife and her parents to think through what feels "fair", in terms of whether her parents are giving to their kids (by taking on college costs that the kids would otherwise have been able and willing to pay) or to grandkids, by giving them money to jump-start their post college life. Unless the kids have substance issues, I wouldn't worry too much about them having money early in life. Sure, they might blow it, but if Gift Granny really needs to get the money out of her estate there's plenty more money to come, and they can learn some spending/saving/investing lessons early.

GeraniumLover
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Re: Gifts to grandkids of different ages

Post by GeraniumLover » Sat Apr 14, 2018 6:37 pm

NotWhoYouThink wrote:
Sat Apr 14, 2018 6:08 pm
I would try to get your wife and her parents to think through what feels "fair", in terms of whether her parents are giving to their kids (by taking on college costs that the kids would otherwise have been able and willing to pay) or to grandkids, by giving them money to jump-start their post college life. Unless the kids have substance issues, I wouldn't worry too much about them having money early in life. Sure, they might blow it, but if Gift Granny really needs to get the money out of her estate there's plenty more money to come, and they can learn some spending/saving/investing lessons early.
It's more that they are helping out their kids by paying the grandkids' college expenses. They always saidthey would do so, but we felt we had to save since what they contributed to our kids early on, before they retired, was clearly not going to be sufficient. And my folks kicked some $$ in too, but it is really my in-laws who will end up paying the bulk of my kids' college expenses. My wife's siblings have not had to save or get $$ from the other grandparents, since they now know the money will be there from their parents based on the contributions made in the last 5 years.

I think they will be reluctant to give my kids such large sums with no strings attached. Neither has handled much smaller no-strings-attached gifts from them well in the past.

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BL
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Re: Gifts to grandkids of different ages

Post by BL » Sat Apr 14, 2018 6:46 pm

Their estate attorney should be the one to help them with their objectives.

Hillview
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Re: Gifts to grandkids of different ages

Post by Hillview » Sat Apr 14, 2018 6:48 pm

Let them keep funding the 529, graduate school, kids, nieces, nephews. I think you have to let them gift what they are comfortable gifting.

GeraniumLover
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Re: Gifts to grandkids of different ages

Post by GeraniumLover » Sat Apr 14, 2018 7:02 pm

Hillview wrote:
Sat Apr 14, 2018 6:48 pm
Let them keep funding the 529, graduate school, kids, nieces, nephews. I think you have to let them gift what they are comfortable gifting.
They don't want to do that. There is no certainty of grad school, and they have no desire to fund that (they didn't for their own kids), and the nieces and nephews are already taken care of. They just want to be sure that the gifts are valued and spent wisely, and will likely forgo making future gifts if they are not. We are trying to come up with something that will protect them from themselves to some degree.

downshiftme
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Re: Gifts to grandkids of different ages

Post by downshiftme » Sun Apr 15, 2018 11:26 am

While I sympathize with concerns about giving 30k outright to a college junior (probably 19 or 20 years old), you should also expect at least some reasonable level of maturity. If that is not the case, then maybe your concerns are warranted. But if the young adult in question is not irresponsible, you should be able to make some simple expectations clear. For example, if the gift is in a separate account in a separate mutual fund and is explicitly called out as here is some money from Grandma that you are expected to leave alone for 10+ years, then you should have reasonable expectations that the money will in fact be left alone for 10+ years and with 10+ years of experience your student should know better how to handle it.

MotoTrojan
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Re: Gifts to grandkids of different ages

Post by MotoTrojan » Sun Apr 15, 2018 11:36 am

Great opportunity to teach them about investing. Let them spend $500 on a fun weekend trip and the rest goes into TSM.

libralibra
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Re: Gifts to grandkids of different ages

Post by libralibra » Mon Apr 16, 2018 12:48 pm

GeraniumLover wrote:
Sat Apr 14, 2018 3:33 pm
Are there other vehicles that may make sense to use, other than joint accounts and trusts, that will allow us some level of oversight/control over our kids' use of these funds?
How about a UTMA account? They are as simple to open at a brokerage as any regular account. You can dump the 30k/yr there and buy your favorite funds. You control it until your kid reaches a certain age depending on your state (max is 25).

DarthSage
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Re: Gifts to grandkids of different ages

Post by DarthSage » Mon Apr 16, 2018 2:37 pm

I would probably go with giving the money to the young adult outright, with some caveats. I would expect them to put the money in savings (or, at least most of it--maybe allow a little for fun things). I would explain to them--have Grandma and Grandpa do this, with reinforcement from Mom and Dad--that this is their legacy, they don't want this money squandered, and and they expect the young adult to take their fiduciary responsibility seriously. And that future gifts would be dependent on the young adult taking this first gift seriously. The grandparents should be very clear on their expectations--would it be okay for the young adult to tap this money for a wedding? House down payment? Travel? Further education, at some point? New car? Ira/Roth?

We're going through this on a much smaller scale right now. My MIL died last year, leaving insurance to our 4 children. The younger three get nothing outright--the terms are, 25% upon college graduation, balance at age 30. DD22 got her initial payout--she put 2/3 into a Roth, and will spend the balance on travel. Both of these are in keeping with our family values. While the younger three won't be seeing a payout for a good many years--youngest is 12--we still talk about this as legacy money--their final gift from their grandmother. We talk about OUR duty to invest it wisely--that this is our duty both to them, and to their grandparents, who worked hard to have this money to gift them.

I have found that my kids respond very positively to this. Even my older son, who has issues with impulse control and has made a few poor financial decisions in the past, knows that he shouldn't touch this money. He's 21, so I can't legally stop him, but he's perfectly content to watch it grow while he does nothing.

I also find that young adults rise or sink to the level that's expected of them. If you approach this with the attitude of, "We know you're mature and responsible enough to manage this", you're likely to get mature results. OTOH, if the 2018 gift is squandered, I wouldn't be gifting in 2019--at least, not outright. I might be willing to try again in 5 years or so.

GeraniumLover
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Re: Gifts to grandkids of different ages

Post by GeraniumLover » Mon Apr 16, 2018 6:02 pm

libralibra wrote:
Mon Apr 16, 2018 12:48 pm
GeraniumLover wrote:
Sat Apr 14, 2018 3:33 pm
Are there other vehicles that may make sense to use, other than joint accounts and trusts, that will allow us some level of oversight/control over our kids' use of these funds?
How about a UTMA account? They are as simple to open at a brokerage as any regular account. You can dump the 30k/yr there and buy your favorite funds. You control it until your kid reaches a certain age depending on your state (max is 25).
My son is no longer a minor and my daughter will only be one for a few more months, so UTMAs are no longer a viable solution for our situation.

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