17 Aug Is money given to grandchildren subject to gift tax?
Q. My wife and I are planning to gift $20,000 to our daughter for our two grandchildren. Being subject to the limits on gift tax and the fact that we have a joint account, how do you separate the two $10,000 gifts?
A. There are several things you should consider when it comes to this generous gift.
When a gift exceeds the annual gift tax exclusion of $15,000 per recipient for each giver, you would need to go to the trouble of filing federal gift tax returns (Form 709) to elect gift-splitting in order not to use of any of your lifetime exemption, currently at $11.7 million, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
Because your desire is for your grandchildren to be the ultimate recipients of your gift, you could have your daughter create accounts in each grandchild’s name and she could be the custodian, she said. Then, you can transfer $10,000 to each of these newly established accounts.
“That would keep you below the $15,000 annual gift tax exclusion and eliminate the need for filing gift tax returns, absent your making additional gifts to the grandchildren in the same year that would exceed $15,000 in total,” Becourtney said.
If getting a head start on paying for college tuition is the motivation for your gift, you may want to consider a 529 plan.
Every state has a 529 plan where all investment growth is tax-exempt and if distributions are made in the future for qualified education expenses, there is no resulting tax impact, Becourtney said.
“You could open accounts with the New Jersey Better Educational Savings Trust — NJBEST — the New Jersey 529 plan, which offers up to $3,000 in tuition awards if the student attends a New Jersey college or university provided certain other conditions are met,” he said. “Alternatively, you could establish a 529 plan with any state, as an investment advisor might steer you to a different 529 plan based on its investment approach and track record.”
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This story was originally published on Aug. 16, 2021.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.