Leaving money to grandchildren can have unexpected tax consequences. As a grandparent, some of your top priorities are likely helping out loved ones and keeping treasured heirlooms or property within the family for generations to come. Your generosity may end up costing you though. There are tax issues to consider before gifting major assets to grandkids, as well as some unexpected consequences for gifting that can impact your healthcare decisions in the future.

Tax Consequences of Giving Assets to Your Grandchildren

The main financial stumbling block to consider is a federal penalty known as the generation-skipping transfer tax (GSTT). This law applies a 40% tax if property or money is given to anyone 37 ½ years younger than you. In most cases, this occurs when a grandparent gives assets to a grandchild directly, but it can also apply to people who aren’t blood-related if the age threshold is met. 

The purpose of the GSTT is to close a loophole that grandparents had used to avoid paying the estate tax by giving property to grandchildren rather than children. Like the estate tax, however, most North Carolina residents will never have to even consider the GSTT. Besides the age difference requirement, it only applies to gifted amounts of $11.4 million or higher.  

There may still be tax implications that affect you even for much smaller gifts to grandchildren. By law, you can give under $15,000 in a single year to any person without disclosing the gift to the government. If you go over that amount, a separate gift tax return form must be filed when handling your yearly taxes.

Even if you give gifts in small enough amounts to avoid these tax consequences, there can still be other issues you need to discuss with an attorney before giving away money or real estate to a family member. Specifically, it is important to keep in mind the Medicaid five-year lookback period that covers gifts of any amount. While you may be financially stable and in good health right now, that can change in the coming years, and it’s always better to be prepared for difficulties ahead

Need Help Understanding Tax Liability for Gifts? Contact Our Experienced Wilmington Asset Protection Attorney Today!

The specific monetary thresholds for these tax issues may change if federal or state lawmakers pass new legislation or allow existing tax law to expire, so make sure to check with an asset protection attorney before making any financial decisions that may affect your family’s future. 

John J. Peck
Wilmington Elder Law, Estate Planning & Asset Protection Attorney
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