Giving Money to Your Grandchildren: What Are the Gift Tax Rules?
Giving Money to Your Grandchildren: What Are the Gift Tax Rules?
Grandparents love helping their grandchildren.
Maybe you want to help with college. A first home. A new baby. Or simply give them money while you are here to enjoy it with them.
You can. But there are a few tax rules you should know.
In 2026, you can generally give up to $19,000 to each grandchild using the federal annual gift tax exclusion.
You may also be able to pay qualifying tuition directly to your grandchild's school without the payment being treated as a taxable gift.
The $19,000 Annual Gift
In 2026, you can generally give up to $19,000 to each grandchild without using your lifetime gift and estate tax exemption.
Have four grandchildren?
You could give each one $19,000.
That's $76,000 in gifts.
If you are married, you and your spouse may generally be able to give a total of $38,000 to each grandchild.
What Happens If You Give More Than $19,000?
Giving more than $19,000 to a grandchild does not automatically mean you will owe gift tax.
But you may need to file a federal gift tax return.
The amount over the annual exclusion may use part of your lifetime federal gift and estate tax exemption.
That is why a larger gift deserves a little more planning.
Want to Pay for College?
There is another helpful rule.
You can generally pay qualifying tuition directly to your grandchild's school without the payment being treated as a taxable gift.
The key is to pay the school directly.
Don't give the tuition money to your grandchild first.
What About a 529 Plan?
A 529 education savings plan may be another way to help a grandchild with future education expenses.
There are special gift tax rules that may allow you to make a larger contribution to a 529 plan and spread the gift over five years for federal gift tax purposes.
But there are rules you need to follow.
If you are thinking about making a large contribution, plan before you make the gift.
Large Gifts Need More Planning
What if you want to give your grandchild much more?
You may be able to do it without paying gift tax.
But gifts to grandchildren can involve another federal tax called the Generation-Skipping Transfer Tax, or GST tax.
Don't let the name scare you.
It simply means that special tax rules can apply when substantial wealth passes to grandchildren or later generations.
Not every gift to a grandchild means you will owe generation-skipping transfer tax.
But if you are making substantial gifts, the GST rules should be part of the planning conversation.
Be Especially Careful With Trusts
Giving money directly to a grandchild can be relatively simple.
Putting money into a trust for a grandchild can be much more complicated.
The gift tax and generation-skipping tax rules may both apply.
That's when good planning becomes especially important.
Give Smart
Giving to your grandchildren can be one of the most rewarding parts of an estate plan.
But don't make a large gift first and ask questions later.
Plan first. Give second.
We can help you decide the best way to make gifts to your children and grandchildren while protecting your overall estate plan.
If you are considering a substantial gift to a child or grandchild, an Arizona estate planning attorney can help you understand how the gift may affect your broader estate plan before you make it.
About Ilene L. McCauley, Esq.
Ilene L. McCauley is an Arizona estate planning attorney who helps individuals and families understand their options and create estate plans designed for their needs.
Estate planning is not just about what happens after you die.
It is also about making thoughtful decisions about your property, your family and the people you want to help during your lifetime.
Disclaimer
This article is for general informational purposes only and is not legal or tax advice. Estate planning, gift tax and generation-skipping transfer tax rules can be complicated, and every situation is different. You should consult with a qualified attorney and tax professional about your individual circumstances.