11 Jul It’s Better To Give Than Receive – Or Is It? Considerations By Grandparents Before Gifting
It is not unusual that grandparents want to help pay for a grandchild’s wedding, college or private school education, camp, car or other items which they feel may help a grandchild. However, the following matters should be considered before a grandparent makes a gift to a grandchild:
- Will the gift jeopardize potential long-term care benefits of the grandparent?
Most Americans have either no or inadequate long-term care insurance or inadequate income or resources to pay for their care. Since Medicare has very limited coverage for long-term care, many consider Medicaid or a Veteran’s benefit program to help pay. However, there is often a “look-back” period as the government presumes the gift was made to reduce assets to be eligible for “means-tested” government benefits. The grandparent could have inadvertently created ineligibility as a result of his or her generosity.
- Gift taxation and reporting
Unlike what most people think, the person that could incur a gift tax or have a duty to report is the donor – not the donee. Notwithstanding that, gift taxation is rarely a concern for most since you can give away $16,000 per year, per donee, without having to report the gift. Even if you give away more than $16,000 in a year to an individual and have a duty to report, very few donors have to pay a gift tax since you are entitled to a credit against what you can give at death (presently $12,060,000.00 in year 2022). Furthermore, if the grandparent makes a payment directly to the school or university for tuition, then there is no limit to the gift or requirement to report (even if in excess of $16,000).
- Will you have enough to live for the remainder of your life?
People are living longer. My wife’s grandmother lived to be 107 ½. If you are too generous, will you later have enough to make ends meet? With skyrocketing inflation and expenses rising, this can be particularly difficult for a grandparent living on a fixed income.
- Is the gift good for the recipient?
What if your grandchild is disabled or later becomes disabled? Public benefits (if “means-tested”) of the grandchild could be jeopardized. What if the grandchild is seeking financial assistance from a university? Will the gift fail your grandchild to qualify for financial aid?
What if the grandchild has a drug or other addiction?
- Will the gift create resentment if one grandchild gets more than the other?
It is not unusual that a grandparent feels closer to one grandchild than another. If more is given to one grandchild than another, it could affect the relationship of your grandchildren long after you are gone. Additionally, your child (the parent of the grandchild) may resent your bypassing his or her authority as a parent.
- Is it a gift or a loan?
Often grandparents “lend” money to a grandchild without documentation such as a promissory note for repayment. If there is an expectation of repayment, then it is best to have it in writing – even if you would never seek legal action against your grandchild. For example, what if your grandchild had creditor issues and was sued? If you had a secured note, then the amount owed you would take priority (even if you don’t enforce it) over the subsequent creditor.
- Timing of gifts
Sometimes it is best to wait on making the gift until it is beneficial for both the grandparent and the grandchild. For example, if the grandparent had inadequate long-term care insurance or is inadequately “self-insured” and needs long-term care, Texas Medicaid rules permit gifts to an irrevocable 529 or to an UTMA (Uniform Transfers to Minors Act) account as an exception to the transfer penalty rules for uncompensated transfers made within the 5-year “look-back” period referred to above.
Grandparents should not only consider the issues above before making a gift, but they should also consider legal options such as the use of trusts as an incentive for the goal that they want the grandchild to achieve or to protect them from creditors, bad marriages, addictions, disability, death prior to the grandparent, etc.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual or in person Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.