A gift is a personal thing, no matter what’s being given. Often, grandparents gift their grandchildren money as a way to say “I love you.” This kind of gift is excellent up to a point. Why? Gift taxes!

Gift taxes are taxes imposed on gifts that exceed a certain monetary value. It’s best to help the families you work with understand how much grandparents can give to their grandchildren without paying taxes and the safest ways to give their grandchildren this money, depending on its ultimate purpose. 

What Is the Grandparent Gift Tax?

In 2021, married grandparents who gift money to their grandchild must pay a tax on these gifts if they total up to $15,000 or more per grandparent. This $15,000 can be spent per grandchild as well. For example, if a married couple has four grandchildren, they could spend up to $120,000.

Of course, grandparents may give more than this amount if they desire. However, they’ll have to pay gift or estate taxes on this money either during their lifetime or after their death. Also, the grandparents would have to fill out and file a gift tax return. 

Pay on Tax

Methods for Giving 

Money can be an excellent gift, whether you gift it in cash or not. However, it can be beneficial to pen certain types of accounts to gift money. Let’s take a look at these different types of accounts so grandparents and grandchildren can get the most out of their gifts:

  • UTMA or UGMA account: Grandparents would open these particular kinds of accounts in the name of the grandchild in question. However, the account would be controlled by an adult until the child reaches a certain age, which could be anywhere between 18 to 21 years old. The money grandparents place in this account can be used for any purpose. 
  • 529 plan: Affording college can be a challenge, which is why a grandparent may put money for their grandchild’s college in a 529 account. This type of account will have one designated owner who will control disbursements and the process of changing the beneficiary.
  • Individual retirement account (IRA): Retirement savings are an essential investment for the future, which is why some grandparents may choose to put money in an individual retirement account for their grandchildren. For a grandparent to put money into an IRA for their relative, the grandchild must have previously earned money that went into that account. The amount a grandparent can contribute to this account must match what the grandchild earned, up to as much as $6,000.
  • Life insurance: Life insurance policies build cash value over time. A grandchild could ultimately use this cash value for any reason. A grandparent putting money into this kind of account for their relative will ultimately protect their grandchildren’s health now and in the future.

Setting up these accounts can help grandparents plan for their grandchildren’s financial futures and set them up for success for the rest of their lives. These accounts are useful for giving monetary gifts because the money grandparents put into them does not count as taxable income.

If your families are interested in putting money into these kinds of accounts for their children, it’s a good idea for grandparents to do their research. Learning how these accounts need to be handled, who will handle them in the future and how to protect the money will help prevent misuse and ensure grandchildren receive the gifts their grandparents gave them.

Ways Schools Can Educate Families on the Grandparent Gift Tax 

There are many ways to reach out to families to educate them about the grandparent gift tax. Let’s take a look at a few of these strategies to clearly communicate necessary information:

  • Pamphlets: Pamphlets can be fun because of their visual aspects and accessibility. If you can hand out a paper pamphlet with eye-catching pictures and intriguing font, families will feel more motivated to flip through it and learn about the grandparent gift tax. You can even create and share an online pamphlet to avoid printing a lot of paper or limit close contact with many people.
  • Newsletters: If your school already sends out monthly newsletters, consider adding information you want your families to know about within these newsletters. Creating newsletters gives you flexibility because you can make them on paper or online. If you make them online, parents will be able to access them directly and from anywhere. If you hand them out via paper directly to a family, they’ll be able to check it out and learn about the grandparent gift tax or other necessary info right away.
  • Website posts: Consider making a website that all parents can access to view any new information about school activities or different topics. This online space will allow parents to stay involved with their child’s education on their own time. Also, if a parent is checking their website for information on school activities already, they’ll be more motivated to click on other information that catches their eye. 
  • Emails: Email is a tried and true method of communication. Emails are an especially good way to communicate with families if you have software that helps you send out emails to many families at once. Emails are great for busy families because users can check their email whenever they choose throughout the day, and they can go back to the email later on if they need to refresh their memories of its contents. 
  • Blogs: Blogs are a great way to educate your families on the grandparent gift tax because parents will log on expecting information about all different kinds of subjects. If they’re already logging on to look for information beyond school activities, they’ll be more likely to click around to different topics. 

Contact TADS

Here at TADS, our ultimate mission is to provide private and independent schools solutions while we support your families. Our software solutions can help your school in the following areas:

  • Tuition management
  • Admissions and enrollment
  • Financial aid
  • School management services 

How does our mission relate to educating your families about the grandparent gift tax? Different families prefer to hear necessary insights about topics like these in various ways. With our software solutions, you can easily keep track of voicemail, email and text communications. Through our online Family and Student Portals, families can log in and view information that has been sent to them previously to refresh their memories. 

If you want more information about educating your families on the grandparent gift tax or other essential topics, give us a call at 800-477-8237 or fill out our online contact form through our website. 

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