Gifting Part of Your Estate to Your Grandchildren

Estate planning is not just about creating a will or trust to manage your assets after you pass; it’s about leaving behind a legacy that reflects your values, desires, and love for your family. As grandparents, one of the most meaningful ways to share your life’s work and your love for future generations is by gifting part of your estate to your grandchildren. This provides financial support and ensures that they are part of the family legacy.

While there are many ways to gift your estate, making informed decisions is essential to avoid unnecessary tax burdens and ensure that your beneficiaries clearly understand your intentions. Let’s explore how to effectively include grandchildren in your estate plan and make sure your gifts have a lasting impact.

Why Gift to Your Grandchildren?

The decision to gift part of your estate to your grandchildren often stems from a desire to provide for their future. Grandparents may want to:

• Help with education costs: Education can be one of families' most significant financial burdens. Contributing to your grandchildren’s education can set them up for future success.

• Ensure financial stability: Gifting a portion of your estate can help provide your grandchildren with the financial security needed for homeownership, business ventures, or personal goals.

• Pass down family heirlooms or wealth: Many grandparents wish to pass down not just money but also family heirlooms, antiques, or other significant items that carry sentimental value and history.

Whatever your reason, thoughtfully planning your gifts ensures they’ll benefit your grandchildren most meaningfully.

Deciding What to Gift

When considering what part of your estate to gift your grandchildren, you’ll need to consider tangible and intangible assets. These might include:

• Financial Assets: Cash, stocks, bonds, or real estate can provide your grandchildren with direct financial support.

• Personal Property: Family heirlooms, antiques, or jewelry can have great sentimental value and connect future generations to their family’s history.

• Life Insurance Policies: These can be structured to leave a specific sum of money to your grandchildren, often tax-free.

• Business Interests: If you own a business, you might want to leave a share to your grandchildren, ensuring they can continue the family business or benefit from its value.

How to Gift Part of Your Estate

Several options exist when gifting part of your estate to grandchildren. Each has advantages, so you’ll need to decide which strategy works best for your financial situation and estate planning goals.

Direct Gifts

A straightforward way to give to your grandchildren is through direct gifts. These are typically cash or personal property you leave in your will. Keep in mind that the IRS allows you to gift up to a certain amount each year to any individual without incurring gift taxes. In 2025, the annual gift exclusion is $17,000 per recipient. This means you can give each grandchild up to $17,000 each year, tax-free. If you're married, both you and your spouse can gift this amount jointly, doubling the benefit to each grandchild.

While direct gifts are simple and effective, they can impact your estate size, which could affect how much you leave to other family members or the overall value of your estate for tax purposes.

Using a Trust

Another way to gift part of your estate is to create a trust. A trust allows you to transfer assets to your grandchildren without going through the lengthy and costly probate process. It also provides you with more control over how and when the gifts are distributed.

For example, you can create a revocable living trust that allows you to manage and amend the distribution of assets during your lifetime and then specify that certain assets be passed to your grandchildren upon your death. Additionally, you can set specific terms, such as the requirement that the money can only be used for educational purposes or that distributions happen when your grandchildren reach a certain age.

A trust can help avoid probate, ensure privacy, and provide more flexibility in managing an inheritance.

Education-Specific Gifts

If you want to focus on supporting your grandchildren’s education, consider contributing to a 529 college savings plan. Contributions to a 529 plan grow tax-free, and when used for educational expenses, withdrawals are also tax-free. You can set up the plan directly, naming your grandchildren as beneficiaries, or even contribute to an existing 529 plan that their parents have set up.

This type of gift ensures that your grandchildren have financial support for their education without the funds being misused or squandered.

Life Insurance Policies

If you want to leave a specific financial gift to your grandchildren without impacting your current estate too much, you can consider using a life insurance policy. With life insurance, your grandchildren can receive a tax-free payout upon your death. You can either name them as direct beneficiaries or set up a trust to manage the distribution.

Life insurance can be especially helpful if you want to leave a significant amount to your grandchildren. It ensures that your estate remains intact while still providing for their future.

Tax Implications of Gifting Part of Your Estate

While gifting part of your estate to your grandchildren is a generous and thoughtful act, it’s important to understand the tax implications. The IRS imposes gift taxes on transfers that exceed the annual exclusion limit, but there are ways to minimize these taxes.

• Gift Tax Exclusion: You can give up to $17,000 annually to each grandchild without incurring gift tax.

• Lifetime Gift Tax Exemption: If you exceed the annual exclusion limit, you may still avoid taxes by using your lifetime gift tax exemption, which is part of your estate tax exemption. In 2025, this exemption is over $12 million, so gifts beyond the annual exclusion can be subtracted from your lifetime exemption.

• Trusts: Some types of trusts, such as irrevocable life insurance trusts, can help you reduce estate taxes by removing the value of the insurance from your taxable estate.

Consulting with an estate planning attorney, CPA, or financial advisor can help you navigate these complex tax issues and ensure that your gifts are structured in the most tax-efficient way possible.

Considerations for Minor Grandchildren

If your grandchildren are minors, you’ll need to plan carefully how their gifts will be managed until they age. Setting up a trust is a great way to ensure that the assets are managed responsibly until your grandchildren reach the age you deem appropriate. You can also designate a custodian or trustee to manage the funds on their behalf.

Gifting part of your estate to your grandchildren is a thoughtful and meaningful way to ensure they are supported and to create a lasting legacy. Whether it’s helping them with education, providing financial security, or passing down family treasures, there are countless ways to give back to the next generation.

By carefully planning how you distribute your estate, considering tax implications, and utilizing tools like trusts and life insurance, you can ensure that your grandchildren receive the gifts you wish to give. Start planning today to create a legacy that will positively impact your grandchildren’s lives for years to come.