Your grandkids know they can come to you for help. Whether they are in need of new transportation or having trouble making rent, your first instinct is to assist with their monetary troubles. There can be some unexpected consequences in the form of extra taxes or difficulty getting assistance for nursing home coverage if you give away too much money, however.
What You Need to Know Before Gifting Assets
Keeping enough funds on hand for yourself and your family if you have specific estate planning goals is important, but there are other considerations to keep in mind before gifting money. First and foremost is that you legally have no say in how your gift is spent. Once it's gifted, it's your grandchild’s money to do with as they please. It may make more sense to set up a trust that can be overseen by a financially responsible trustee.
Additionally, the tax consequences should be kept in mind for large donations. Both you and your spouse can gift $15,000 per person to anyone per year, including any of your grandchildren, without paying any extra tax. If you go over that amount, you will need to fill out a gift tax return when you handle your annual taxes.
When dealing with high-value expenses, like medical bills or college tuition, there are methods of going over that $15,000 limit without tax consequences in certain circumstances. The gift tax specifically covers direct monetary contributions, but there are no tax requirements for paying your grandchild’s bills. Directly making payments to a hospital or college rather than giving money to your grandchildren and having them make the payments may be a better option.
Finally, there is one last issue many grandparents may not want to consider but should keep in the back of their minds. Property and monetary gifts you give to family members count against you if you need to apply for Medicaid to cover an expensive nursing home stay. Medicaid utilizes a full five-year lookback period to check for these kinds of gifts. Even if you are healthy and financially stable now, that may not be the case in four or five years, which is why you should have a lawyer help you plan for the future.
Talk To Our Experienced Estate Planning Lawyer Before Making Any Financial Decisions
Are you unsure of how to best help your family with financial contributions? Get in touch with an experienced Wilmington asset protection attorney to learn how to deal with your unique situation.