Takeaways
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Grandparents should clarify whether financial assistance for their grandkids is a gift or a loan.
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Consider 529 plans for education funding to ensure fairness and tax benefits.
- Grandparents should also ensure their own financial security, especially regarding potential long-term care costs.
Grandparents often are particularly generous to grandchildren as they see their family’s legacy continuing to the next generation. In many cases, grandparents feel they have ample resources while their children or grandchildren may be struggling financially.
Assistance with summer camp fees, college tuition, wedding costs, or the down payment on a first home can permit grandchildren to take advantage of opportunities that otherwise would be out of reach. Some grandparents also don’t feel it’s right that children and grandchildren should need to wait for an inheritance, when they have more than they need.
Helping out family members is to be encouraged but can raise numerous legal issues involving taxes and eligibility for public benefits, as well as questions of fairness among family members. Here are six issues grandparents should consider before making gifts to loved ones:
Is It a Gift or a Loan?
Does the grandparent expect anything in return? Do they want the funds repaid or is the money an advance on the grandchild’s eventual inheritance? Either way, this should be made clear, preferably in writing, whether in a letter that goes with the check or, in the case of a loan, a formal promissory note.
Is Everyone Being Treated Equally?
Not every grandchild has the same financial needs. At the same time, grandparents may not feel equally close to all their grandchildren. While it’s the grandparent’s money and they can do what they want with it, if they’re not treating all their grandchildren equally, they might want to consider whether unequal generosity will create resentment within the family.
Many elder law clients say that what they do with their money during their lives is their business. They may help out some children and grandchildren more than others based on need, with the expectation that this will be kept private. They may then opt to treat all their children equally in their estate plan.
Beware Taxable Gifts
Any gift to an individual in excess of $19,000 (in 2025) per year must be reported to the Internal Revenue Service (IRS) on a gift tax return via Form 709. Two grandparents together can give up to $38,000 per recipient per year (as of 2025) with no reporting requirement. Note that there’s no limit or reporting requirement for payments made directly to medical and educational institutions for health care expenses and tuition for other individuals.
529 Plans
Many grandparents want to help pay higher education tuition for their grandchildren, especially given the incredibly high cost of undergraduate and graduate school today. But perhaps not all your grandchildren are the same age, making it difficult to make sure that they all receive the same level of assistance from you. Some grandchildren may still be in diapers while others are getting their doctorates.
One potential solution is to fund 529 accounts for each grandchild. These are special accounts that grow tax deferred, with the income and growth never taxed as long as the funds are used for higher education expenses.
Don’t Be Too Generous
Grandparents need to make sure that they keep enough money to pay for their own needs. While small gifts probably won’t make any difference one way or another, too many large gifts can quickly deplete a lifetime of scrimping and saving. It won’t do the family much good if a grandparent is just scraping by because they’ve done too much to support their children or grandchildren.
Consider the Need for Long-Term Care
To be certain that they’ve kept enough of their own savings, grandparents need to consider the possibility of needing care. Whether they stay at home in their later years or move into assisted living or a nursing home, long-term care is more expensive than ever before. In fact, the annual median cost of in-home care with a home health aide in the United States was nearly $80,000 in 2024.
In addition, those seniors who can’t afford to pay for such care from their own funds need to be aware that any gift can make them ineligible for Medicaid benefits for the following five years.
Work With an Elder Law Attorney
Each family situation has its own unique dynamics, so there may likely be other issues to consider. For example, you might not trust your grandchildren to spend a gift wisely. Or, your gifts may undermine the parents’ plans for your grandchild.
In some instances, grandparents may want to consider “incentive” trusts, which provide that the funds will be distributed when grandchildren reach certain milestones, such as graduating from college or holding down a job. Communication with the middle generation can be key to making certain that gifts achieve the best results for all concerned.
Talk to your attorney about devising the best plan for yourself and for your grandchildren.
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