Gifting Strategies for Grandparents

By Stephen V. Kenney, CFA, CFP
Gray Private Wealth, LLC

It is said that the joy of becoming a grandparent is the opportunity to spend time with grandchildren without the daily responsibilities of parenthood. Even if the daily chores are now under the care of the next generation, that doesn’t mean grandparents don’t often look for ways to help their grandchildren. Here are some ways to support your grandchildren financially.

Strategies for making gifts of money to a grandchild can range from a small cash gift on a birthday or other special occasion, up to very large gifts placed in a trust or made to an educational or medical institution on their behalf. Below is a brief description of popular gifting strategies. Please keep in mind that gifts involving more than the modest gift of cash could have income tax, and possibly gift and estate tax implications, and should be discussed with your tax advisor in advance. And, while this article is oriented to assist grandparents with gift making, these strategies can be used by any individual. 

Gifts of cash can be made to any individual free of federal gift or estate tax implications up to an annual maximum per recipient. In 2024 the maximum annual gift amount is $18,000. The gift may be “split” by including a spouse as a giver, which would double the maximum allowable to $36,000. These “annual exclusion” gifts could go a long way to help an adult grandchild with a major purchase such as a car or a down payment on a home. Understandably, a large gift of cash may not make sense for a young grandchild. 

For gifts of amounts that may be more than just “birthday money,” or where a grandparent wants to help a grandchild accumulate savings, a custodial account may make sense. Requirements for these accounts are unique to each state, but typically involve opening an account at a financial institution in the name of the grandparent (or parent, uncle, etc.), for the benefit of the child. The gift is irrevocable once made, and the account must be used only for the benefit of the child. Under current IRS rules, the first $1,250 in interest paid on the account balance is exempt from federal income tax, and a portion of annual earnings in excess of that amount is taxed at the child’s rate. The biggest catch of a custodial account is that, by law the assets must pass to the beneficiary grandchild at age of legal maturity, which ranges from 18-25 years old, depending on the state that governs the account. 

The mandatory transfer of a custodial account’s assets to the beneficiary at a relatively young age means that these accounts may make sense if they are only expected to grow to a size that you believe is within the capability of the grandchild to manage at maturity. 

Trusts are the best instruments to consider if the objectives are to make larger gifts of money or assets, or where the grandparent wants to control how the gifted assets are used to benefit the grandchild or grandchildren. There are many variations in the types of trusts that make sense for these gifts, and the options should be discussed with an estate planning attorney. In concept, a trust is a written legal document which dictates the terms by which the grandparent (the “grantor”) will transfer cash or other assets to a “trustee” for safekeeping and investment (typically a bank or trust company), and how (or if) the beneficiary grandchild or grandchildren will have access to the trust property or its earnings. 

Another strategy could be to make the gift of money directly to a school or medical facility on behalf of the grandchild. The types of educational institutions and medical expenses that qualify are detailed in IRS regulations and should be reviewed with your tax advisor. Gifts of money made for these specific purposes are not subject to any limit and may be made in addition to making annual exclusion gifts described above.

Gifts to Fund Education and Retirement Savings Accounts
There are several increasingly popular ways that grandparents can support a grandchild’s education or retirement savings. In the case of a 529 Educational Savings Plan, a grandparent can make a gift of money up to the annual exclusion amount described above to a 529 account established at a financial institution for the benefit of a grandchild. Unique to 529 accounts is that the account can be “super funded” by allowing the grandparent to fund up to 5 years of annual exclusion gifts in a single year with no gift tax consequence. Under the 2024 limits, which equals $90,000, or $180,000 if you add a spouse. All earnings on a 529 savings account grow tax-free, and distributions of account assets made for qualified educational expenses, including tuition, are free of federal and state income taxes. Be aware that distributions from a 529 plan do have implications for students seeking financial aid for higher education.

Helping a grandchild save for retirement may not be the first thought when considering a financial gift. But a young grandchild has one of the most important benefits at their disposal to work towards a more secure retirement – TIME. Even modest gifts to a grandchild’s retirement account have the potential to grow to multiples of the original gift by the end of their working years. Either a Traditional IRA or Roth IRA account may make sense. The caveat is that a grandchild must have earned income from employment for the calendar year the gift is made, and the gift amount cannot exceed the lesser of the IRS annual contribution or the earned income. Contributions to these accounts are included towards reaching the annual exclusion gift maximum. Your tax advisor can help determine the best vehicle and eligible contribution amounts.

Among the many gifts a grandparent can choose for a grandchild, financial gifts of even modest amount can go a long way towards helping secure the financial life of your progeny. The strategy you consider will depend upon your objectives, available financial resources, and the tax rules that apply. We recommend that you include your tax advisor in the planning process.

Stephen Kenney, CFA, CFP is Chief Compliance Officer & Director of Client Development at Gray Private Wealth, LLC, a wealth management advisory firm located in Canton, MA. He can be reached at (781) 232-2020 or

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