What is the Grandparents Gift Limit?

As grandparents, we always want to show our love and support for our grandchildren. Whether it’s through a special day out, a thoughtful gift, or financial assistance, we want to provide for them in any way we can. However, when it comes to giving gifts, there is a limit that we need to be aware of – the grandparents gift limit.

Readmore: Best picture gifts for grandparents Gearcustoms Store

The grandparents gift limit refers to the maximum amount of money or property that a grandparent can give to their grandchild without having to pay gift tax. This limit is set by the Internal Revenue Service (IRS) and changes each year. In this article, we will delve deeper into the topic of grandparent gifting limits, including the current limit, ways to give gifts, and other important information.

The Current Grandparents Gift Limit

For the year 2023, the annual gift tax exclusion is $17,000 per person. This means that a grandparent can give each grandchild up to $17,000 in a year without having to report the gift to the IRS or pay any gift tax. It is worth noting that this limit is per grandparent, so both maternal and paternal grandparents can give up to $17,000 each to the same grandchild without any tax implications.

Additionally, there is a lifetime gift tax exemption, which is the total amount of money or property that a person can give away during their lifetime without having to pay gift tax. As of 2023, this exemption is $12.92 million. This means that if a grandparent were to give more than $17,000 in a year, they would not have to pay any gift tax on the excess amount until they reach the lifetime exemption limit of $12.92 million.

It is essential to keep in mind that these limits may change annually, so it’s crucial to stay updated on the latest information from the IRS.

Ways to Give Gifts

As grandparents, we have various options when it comes to giving gifts to our grandchildren. Some popular ways include outright gifts, custodial accounts, and trusts. Let’s take a closer look at each of these options.

Outright Gifts

These are gifts that are made directly to the grandchild. Outright gifts can be made in cash, property, or other assets. The advantage of an outright gift is that it is simple and straightforward. As long as the gift is within the annual or lifetime exemption limit, there will be no tax implications for either the grandparent or the grandchild.

However, one thing to keep in mind is that once the gift is given, it becomes the property of the grandchild. This means that the grandparent will have no control over how the gifted money or assets are spent. If you prefer to have more control over how the gift is used, another option might be more suitable.

Custodial Accounts

Custodial accounts, also known as UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfers to Minors Act) accounts, are accounts that are set up for the benefit of a minor child. As the grandparent, you can make gifts to these accounts, and the child will have access to the money when they reach the age of majority, which is typically 18 or 21, depending on the state.

The advantage of a custodial account is that it allows for more control over how the gifted money is spent. The custodian, who is usually the parent of the child, manages the account until the child reaches the age of majority. However, once the child has access to the funds, they can use it for any purpose. Another important thing to note is that any income generated from the gifted money is subject to income tax, but it is usually taxed at the child’s lower tax rate.

Trusts

Trusts can be used to provide financial support for grandchildren over a period of time. Grandparents can create trusts that name their grandchildren as beneficiaries and specify how the assets in the trust will be managed and distributed.

The advantage of using a trust is that it allows for more flexibility and control over how the gifted funds are managed and when they are distributed to the grandchild. For example, if you want the funds to be used for specific purposes, such as education or healthcare, you can specify it in the trust document.

However, creating a trust can be a complex and expensive process, so it’s essential to seek advice from a legal professional.

Other Important Information

It’s crucial to keep accurate records of any gifts given to grandchildren, especially if the amount exceeds the annual exemption limit. This will make it easier to report the gift to the IRS and avoid any potential issues in the future.

For those who have multiple grandchildren, it may be wise to rotate the annual gifts among them to ensure that each child receives the same amount. For example, if you have five grandchildren, instead of giving each one $17,000 in a year, you could give one grandchild $34,000, then the next year, give another grandchild $34,000, and so on.

Additionally, it’s worth noting that gifts given for medical or educational expenses are excluded from the gift tax. This means that if a grandparent pays their grandchild’s medical bills or tuition fees directly to the provider, it does not count towards the annual gift limit.

Conclusion

In conclusion, the grandparents gift limit is an important factor to consider when giving gifts to our beloved grandchildren. While there is a limit set by the IRS, there are various ways to give gifts without having to worry about gift tax implications. Whether it’s through outright gifts, custodial accounts, or trusts, the most important thing is to show our love and support for our grandchildren in whatever way we can.