Whether you envision creating lasting memories over family vacations, giving once-in-a-lifetime gifts or helping to pay for your grandchild’s college education, you have many options to help you reach your goals. In reflecting on your vision for your financial legacy, we’ll explore some strategies for sharing your wealth with your grandchildren.

An overview of gifting limits

Gifting can provide estate, income and/or capital gains tax benefits. The current annual gift tax exclusion amount is $18,000, allowing you to give this amount to an individual in a single year without being subject to potential gift taxes. Any gift over $18,000 will count against your lifetime gift and estate tax exemption amounts. Once you’ve exhausted the lifetime amount, you owe gift taxes.

It’s important to note that your annual gift tax exclusion amount is separate from your lifetime federal gift and estate tax exemption. The current lifetime limit is $13.61 million per person ($27.22 million per married couple). Amounts given over your annual limit reduce your lifetime exemption.

Taking all of this into consideration, you’ll want to discuss with an estate-planning attorney or tax preparer whether your chosen method of gifting could require filing a gift tax return.

A legacy of meaning through experience

Beyond gift-giving in the traditional sense, time spent on family trips and traditions can create meaningful experiences for your grandchildren and loved ones. They’re also a financially smart way to leverage your annual exclusion and lifetime exemption amounts.

Whether paying for the ultimate family vacation to a bucket-list destination or surprising your grandchild with a well-earned trip as a graduation gift, consider experiential gifts as part of your estate-planning strategy.

Investing in education

A number of financial strategies can help you support your grandchild’s educational future, especially as the cost of a college education is on the rise. A 529 plan is a common education savings vehicle that offers tax benefits when used toward qualified expenses. You may contribute as much as $90,000 to a 529 plan in 2024, if you treat the contribution as if it were spread over a five-year period, also known as superfunding. And don’t forget that your spouse can also make annual exclusion gifts or superfund a 529 account. The contribution must then be equally spread across five years, and a gift tax return will have to be filed.

Any additional annual contributions within that same five years that exceed the annual gift exclusion amount would count against the lifetime gift exemption and could be taxable if the donor has used their entire lifetime gift tax exclusion. However, if a donor dies before the five-year period has ended, only a portion of the contribution is considered a completed gift. The remaining amount will be added back to the donor’s estate and subject to any taxes.

Although 529 plan contributions aren’t deductible for federal income tax purposes, many state plans offer state income tax deductions for contributions. Qualified distributions, however, are federally tax free, and any contribution growth is tax free. Tax issues for 529 plans can be complex; please consult your tax advisor about your situation.

Another tax-advantaged strategy is paying your grandchild’s college directly. This has the benefit of avoiding the federal gift tax altogether by leveraging a rule exception. This exception applies only to tuition and not room, board and other expenses. Direct tuition payments are also exempt from the generation-skipping transfer (GST) tax.

The value of cash gifts and appreciated assets

Additional tax-savvy options include giving direct cash gifts or appreciated assets to your grandchildren. With cash gifts, your grandchild has the freedom to use the money as they choose, although they may appreciate your guidance in saving for the future and investing in themselves.

Gifting appreciated assets may result in lower taxation if your grandchild is in a lower capital gains tax bracket. If an investment increases in value between the time you purchase and gift the asset, this will result in a capital gain.

If your grandchild is a minor, you may want to consider establishing a custodial account, sometimes referred to as a Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) accounts.

These accounts are administered by an adult (the custodian) until the minor reaches the age of termination — defined by state law, but generally 18, 21 or 25. Once they reach the designated age, they have full control of the assets. Although there is no contribution limit when it comes to custodial accounts, amounts exceeding the annual gift exclusion may be subject to a federal gift tax.

If you’re seeking to have more control than a custodial account allows, or your account will be established on behalf of a grandchild with special needs, we recommend speaking to an estate-planning attorney about creating a trust for your grandchild.

You may also consider funding a Roth IRA for your grandchild, who would need to meet the eligibility criteria for a Roth contribution. The contribution can be up to $7,000 for 2024, but the contribution can’t exceed the actual amount of your grandchild’s taxable compensation.

How Edward Jones can help

Edward Jones is committed to comprehensive advice and estate guidance. Your financial advisor can help implement one or more of these strategies into your estate plan.

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.