Gift for two of four grandchildren

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focusedonwhatmatters
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Gift for two of four grandchildren

Post by focusedonwhatmatters » Mon Oct 15, 2018 10:55 am

My mother has already gifted $25K each to two of her four grandchildren, done in two payments each over two calendar years for tax purposes. This is her gift for the grandchildren going to college.

There are two more grandchildren who are a few years younger. Grandma is not in great health. Grandma has a trust that does not include the grandchildren as direct heirs. In order to make sure those two grandchildren get the intended gift from Grandma, could she set up and fund two separate accounts for those grandchildren now, with those minors as named beneficiaries? Are there any unintended consequences of this?

Thanks in advance!

fowm

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TxAg
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Re: Gift for two of four grandchildren

Post by TxAg » Mon Oct 15, 2018 10:57 am

Why can't she write a check to the parents of those two kids with the expectation they use the $$$ for college?

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UpsetRaptor
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Re: Gift for two of four grandchildren

Post by UpsetRaptor » Mon Oct 15, 2018 11:06 am

She can directly fund a 529 account for grandkids' college education. She can open up an account with her as owner, with grandkids as beneficiary, or a parent could open the account, with kids as beneficiary, and grandma directly contributes to that. Lots of grandparents utilize 529s for grandkids college, in some form or another.

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focusedonwhatmatters
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Re: Gift for two of four grandchildren

Post by focusedonwhatmatters » Mon Oct 15, 2018 11:06 am

A single check of $25K would have tax consequences for the parents of both of the grandkids, so this would also have to be done over two years. Grandma is not in the greatest of health. Also, one of the parents is not great with finances.

A 529 isn't a solution. The money is for the kids going to college, not necessarily to be spent on college. My oldest received many scholarships and barely touched the 529, so that gift is invested. My younger child's 529 is probably more than needed already. The second unfunded grandchild has some learning disabilities, and may not go to college, but Grandma still wants to gift the $25K.
Last edited by focusedonwhatmatters on Mon Oct 15, 2018 11:13 am, edited 1 time in total.

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Re: Gift for two of four grandchildren

Post by Broken Man 1999 » Mon Oct 15, 2018 11:08 am

TxAg wrote:
Mon Oct 15, 2018 10:57 am
Why can't she write a check to the parents of those two kids with the expectation they use the $$$ for college?
Expectations are not certainties.

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Gill
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Re: Gift for two of four grandchildren

Post by Gill » Mon Oct 15, 2018 11:17 am

focusedonwhatmatters wrote:
Mon Oct 15, 2018 11:06 am
A single check of $25K would have tax consequences for the parents of both of the grandkids...
What kind of tax consequences? Why can't she make the gifts now and put the proceeds in a UGMA account? Is her estate over $5 million and therefore there are gift/estate tax consequences?
Gill
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focusedonwhatmatters
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Re: Gift for two of four grandchildren

Post by focusedonwhatmatters » Mon Oct 15, 2018 11:22 am

Gill wrote:
Mon Oct 15, 2018 11:17 am
focusedonwhatmatters wrote:
Mon Oct 15, 2018 11:06 am
A single check of $25K would have tax consequences for the parents of both of the grandkids...
What kind of tax consequences? Why can't she make the gifts now and put the proceeds in a UGMA account? Is her estate over $5 million and therefore there are gift/estate tax consequences?
Gill
Isn't the annual gift tax exclusion for 2018 $15,000?

toys4tots16
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Re: Gift for two of four grandchildren

Post by toys4tots16 » Mon Oct 15, 2018 11:29 am

focusedonwhatmatters wrote:
Mon Oct 15, 2018 11:22 am
[quote=Gill post_id=4166993 time=<a href="tel:1539620223">1539620223</a> user_id=865]
[quote=focusedonwhatmatters post_id=4166970 time=<a href="tel:1539619617">1539619617</a> user_id=127480]
A single check of $25K would have tax consequences for the parents of both of the grandkids...
What kind of tax consequences? Why can't she make the gifts now and put the proceeds in a UGMA account? Is her estate over $5 million and therefore there are gift/estate tax consequences?
Gill
[/quote]

Isn't the annual gift tax exclusion for 2018 $15,000?
[/quote]

$15k per person per year. So Grandma can give $15k to the Dad and $15k to the Mom without consequences.

But even if it were over the annual limit, it then simply lowers the lifetime exemption which is ~$5 million.

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focusedonwhatmatters
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Re: Gift for two of four grandchildren

Post by focusedonwhatmatters » Mon Oct 15, 2018 11:30 am

[/quote]

$15k per person per year. So Grandma can give $15k to the Dad and $15k to the Mom without consequences.

But even if it were over the annual limit, it then simply lowers the lifetime exemption which is ~$5 million.
[/quote]

I am widowed.

ExitStageLeft
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Re: Gift for two of four grandchildren

Post by ExitStageLeft » Mon Oct 15, 2018 12:38 pm

For 2018 the estate exclusion limit is $5.6 million. Any gifts above the personal exclusion of $15,000 would need to be reported on a Form 709. This IRS article helps explain gift taxes, although it is not current to 2018: https://www.irs.com/articles/7-things-y ... t-gift-tax
Item 6. seems most relevant.

In addition to a 529 account, the grandparent could set up a UTMA account.

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RickBoglehead
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Re: Gift for two of four grandchildren

Post by RickBoglehead » Mon Oct 15, 2018 12:45 pm

focusedonwhatmatters wrote:
Mon Oct 15, 2018 10:55 am
My mother has already gifted $25K each to two of her four grandchildren, done in two payments each over two calendar years for tax purposes. This is her gift for the grandchildren going to college.

There are two more grandchildren who are a few years younger. Grandma is not in great health. Grandma has a trust that does not include the grandchildren as direct heirs. In order to make sure those two grandchildren get the intended gift from Grandma, could she set up and fund two separate accounts for those grandchildren now, with those minors as named beneficiaries? Are there any unintended consequences of this?

Thanks in advance!

fowm
She can simply create an addendum to the trust, stating that she wishes grandchild #3 and grandchild #4 to receive $25,000 each before any other proceeds are distributed. Getting that notarized and putting it with the trust document should suffice - but check with a lawyer to be sure.

Or, she can setup 529s with herself as the owner, and anyone as the subsequent owner when she passes, with each grandchild as the beneficiary. If one set of parents isn't good with money, simply have someone else be the owner of the 529, such as an Aunt or Uncle.
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Gill
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Re: Gift for two of four grandchildren

Post by Gill » Mon Oct 15, 2018 1:59 pm

focusedonwhatmatters wrote:
Mon Oct 15, 2018 11:22 am
Gill wrote:
Mon Oct 15, 2018 11:17 am
focusedonwhatmatters wrote:
Mon Oct 15, 2018 11:06 am
A single check of $25K would have tax consequences for the parents of both of the grandkids...
What kind of tax consequences? Why can't she make the gifts now and put the proceeds in a UGMA account? Is her estate over $5 million and therefore there are gift/estate tax consequences?
Gill
Isn't the annual gift tax exclusion for 2018 $15,000?
Yes, but there is no tax involved unless her assets exceed $5million.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: Gift for two of four grandchildren

Post by LadyGeek » Mon Oct 15, 2018 9:52 pm

This thread is now in the Personal Finance (Not Investing) forum (gift).
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Ostentatious
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Re: Gift for two of four grandchildren

Post by Ostentatious » Mon Oct 15, 2018 10:02 pm

focusedonwhatmatters wrote:
Mon Oct 15, 2018 11:06 am
A 529 isn't a solution. The money is for the kids going to college, not necessarily to be spent on college. My oldest received many scholarships and barely touched the 529, so that gift is invested. My younger child's 529 is probably more than needed already. The second unfunded grandchild has some learning disabilities, and may not go to college, but Grandma still wants to gift the $25K.
Why is 529 not a solution? The 25K contributed can always be withdrawn for non education expenses without penalty or tax implications.

delamer
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Re: Gift for two of four grandchildren

Post by delamer » Mon Oct 15, 2018 10:10 pm

The grandmother can open a UTMA for each grandchild.

She can fund each account with $25K.

While she will need to file a form with her 2018 taxes reporting the gift, there will be no tax consequence for 2018. (If the gift was $15,000 or less than she wouldn’t need to file the form.)

The only possibility for future tax consequences is if her estate is greater than $5.6 million.

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celia
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Re: Gift for two of four grandchildren

Post by celia » Mon Oct 15, 2018 10:56 pm

If the money is to be given ONLY if the grandchildren go to college, then that is what needs to be implemented. An amendment to her will/trust could do it, but the executor/trustee would have to wait until they are 30 or so to see if college happens. Or if the money is put in a 529, it can be withdrawn when they are in college, assuming their college expenses are at least that much. If they don't go to college, the beneficiary on those accounts could be changed to whoever she wants.

libralibra
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Re: Gift for two of four grandchildren

Post by libralibra » Tue Oct 16, 2018 12:11 am

post removed
Last edited by libralibra on Wed May 29, 2019 11:10 pm, edited 1 time in total.

DarthSage
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Re: Gift for two of four grandchildren

Post by DarthSage » Tue Oct 16, 2018 6:33 am

Since the intent is a gift for going to college, an UTMA is probably the easiest choice. Does she want special consideration for the special needs child? By that I mean, does that child get the money, even if college isn't an appropriate choice? (I have no idea if it is or isn't.)

My MIL set up a legacy trust to benefit her 7 grandchildren (we have 4, BIL has 3). She used life insurance. The terms of the trust stated that each family's kids shared half of the proceeds. Then, the grandkids got 1/4 for graduating college, then the balance at age 30. I'm sure my MIL didn't spend a ton to set this up. Obviously, your mom could use whatever terms suited her.

golfCaddy
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Re: Gift for two of four grandchildren

Post by golfCaddy » Tue Oct 16, 2018 9:02 pm

One unintended consequence could be reduced eligibility for financial aid, obviously depending on everyone's financial situation.

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