Provided by Bennett C. Whitlock III, Whitlock Wealth Management
If you’re in a position to provide financial help to your grandchildren, your generosity is likely to be greatly appreciated. Here are some things to consider before acting on your desire to give younger family members a financial boost.
Ways to provide financial assistance.
There’s more than one way to contribute to your grandchildren’s financial well-being. Select the method that works best for your circumstances and will make the greatest impact.
Open and contribute to a 529 plan.
If college is in your grandchild’s future, a 529 college savings plan can be very helpful. If you go this path, your contributions would be tied to the stock market, offering the potential for growth over time. Future distributions will not be taxed, as long as the beneficiary uses the funds for qualified expenses.
Co-sign on a loan.
Credit guidelines have tightened in recent years, making it harder for young people to qualify for loans. Consider co-signing a loan for a grandchild to help pay for school, a reliable car or a first home, as long as you would not be harming your own financial security to do so. Be sure to have a clear understanding of who is responsible for loan payments to avoid loan default.
Pay an expense directly.
You can pay college tuition as well as medical and dental bills on another person’s behalf without incurring federal gift tax. Make payments directly to the school or provider to avoid using other gift tax exclusions.
Stocks and other investments can be purchased by you and gifted to another. You can also transfer ownership from existing stock holdings. Keep in mind if an investment has grown, the recipient will be responsible for paying taxes on any capital gains when the stocks are sold.
Create a trust.
A trust is a useful legal entity when you have significant wealth you’d like to share with your grandchildren. By establishing a trust, you decide at what age your beneficiaries can draw from the trust (while you’re still living or after you pass) and the rate at which funds are distributed.
There’s always the option to give the gift of cash.
Know the tax rules.
Generally, the IRS requires disclosure of gifts of cash or assets (such as stocks or property) in excess of $15,000 per recipient using IRS Form 709. Giving rules are per person, so both you and your spouse can each give up to $15,000 per recipient without reporting it. While the giver is responsible for paying gift tax, the lifetime exclusion means you can currently give upwards of $11 million in gifts without gift tax obligation.
Ask before you give.
Financial assistance can be a sensitive topic. Consider if your grandchildren’s parents may want to know about financial gifts intended for their children. This is especially true if the children have access to money without any requirements for its use or if there’s a history of money mismanagement.
Consult your financial advisor.
To safeguard your own financial position, review your finances before making financial gifts. When giving is a priority, your financial advisor can help you draw down your assets while managing the tax implications.
Bennett C. Whitlock III, CRPC®, is a Private Wealth Advisor and CEO with Whitlock Wealth Management, a private wealth advisory practice with Ameriprise Financial Services, LLC. He specializes in fee-based financial planning and asset management strategies and has been in practice for 26 years. To contact him visit whitlockwealth.com, call 877-WHITLOCK or email email@example.com. Offices are located at 12848 Harbor Dr, Ste 101, Lake Ridge, VA 22192 and in Downtown Historic Manassas at 9073 Center Street, Manassas VA 20110.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.
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