October 24, 2019
In our experience as estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. attorneys, we know that grandparents love giving gifts to their grandchildren. For our clients able to make significant gifts to their grandchildren, they find it rewarding to help their grandchildren with educational expenses and other major life purchases.
Over the years, we have come to appreciate that (understandably) few grandparents understand how best to make those gifts, from an estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. and tax perspective. Few grandparents are aware of the issues affecting major gifts. In this article, we willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. discuss some of our concerns, some issues, and some suggestions for improved grandparent gifting.
Give Yourself Peace of Mind
A properly crafted estate plan can give you peace of mind, knowing your assets and family are well protected. Our estate planning lawyers will help you get there.
To be clear, this article is not about small holiday or birthday gifts. Giving smaller routine gifts for holidays, birthdays, and other occasions rarely present a concern. Those smaller gifts only become an issueA person’s children and/or lineal descendants such a grandchildren and great-grandchildren. It refers to a direct blood line in Wisconsin along with legally adopted persons. In Wisconsin the term “issue by right of representation” is commonly used to indicate that a share of beneficiary, if predeceased, shall be distributed to his or her children or lineal descendants. Although slightly different this is often also referred to as Per Stirpes distribution. when a grandparent is facing a long-term nursing home or assisted living stay. When we say grandparent gifting, we mean gifts of significant value.
Grandparent Gift or Loan?
The estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. laws in Wisconsin are clear that the intention of the transfer of assets must be very clear. If you want to give a gift to your grandchildren, tell them so in writing. If you’re extending them a favorable loan, put that in writing too. This written record of your intentions is very important.
Considering Gifts to Grandchildren
The following are a few items to consider and follow when looking to give major gifts to grandchildren.
- Is the gift an advance that should offset any future inheritance on the grandparent’s death?
- If the answer to the above question is “Yes”, it is important that the grandparent’s willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. or trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. be updated to reflect this offset.
Considering Loans to Grandchildren
The following are a few items to consider and follow when looking to make loans to grandchildren.
- Make it clear that it is a loan; document it with a written promissory note.
- Is the loan to be forgiven at death or must it be repaid even after the grandparents death? The answer should be reflected in the grandparent’s willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. or trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., especially if it is forgiven at death. The promissory note should reflect also if it is forgiven at death.
- When considering loans to grandchildren, it is critical to understand that if you need Medicaid to pay for nursing home or assisted living care, any gift within five years of applying for Medicaid willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be an issueA person’s children and/or lineal descendants such a grandchildren and great-grandchildren. It refers to a direct blood line in Wisconsin along with legally adopted persons. In Wisconsin the term “issue by right of representation” is commonly used to indicate that a share of beneficiary, if predeceased, shall be distributed to his or her children or lineal descendants. Although slightly different this is often also referred to as Per Stirpes distribution.. (Please see below for further details.)
Sharing Equally or Not
In our experience, some grandparents want to share equally with all of their grandchildren. Other grandparents take into consideration the individual needs or challenges of their grandchildren and choose not share in that way.
For those seeking to grandparent gift equally, you willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. need to offset and equalize gifts. This is especially true where grandparent gifting to date has not been equal to all of your grandchildren. This willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. need to be done in your willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. or trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..
Before giving unequal gifts, we invite you to consider the implications and discuss estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. solutions with an experience attorney.
Medicaid and Long Term Care Costs
Any significant gifts made within five years of applying for Medicaid for nursing home or assisted living long term care costs present a major issueA person’s children and/or lineal descendants such a grandchildren and great-grandchildren. It refers to a direct blood line in Wisconsin along with legally adopted persons. In Wisconsin the term “issue by right of representation” is commonly used to indicate that a share of beneficiary, if predeceased, shall be distributed to his or her children or lineal descendants. Although slightly different this is often also referred to as Per Stirpes distribution.. Gifts within five years of applying for Medicaid willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. result in penalty periods where Medicaid willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. not pay for long term care costs. Although this topic is beyond the scope of this article, whenever planning on making significant gifts, a grandparent should speak with an estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. attorney to discuss the best way to accomplish these gifts, and the relevant Medicaid laws and time periods.
We regularly highlight for our clients that the IRS laws on taxable gifts are entirely separate from Medicaid gifting laws. Medicaid does not have a gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. exclusion.
Is Your Gift a Taxable Gift?
Generally, a gift of $15,000 or less per grandchild per year is not taxable. Each grandparent can take advantage of this gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. exclusion. As such, two grandparents together could give $30,000 in total to a grandchild in one year without it being a “taxable” gift.
In addition, the $15,000 or $30,000 taxable gift exclusion limits can be exceeded without paying any actual taxes for most grandparents. Rather, the amounts over these limits require reporting the gifts to the IRS, causing a reduction of how much can be left estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax. free at death. For most grandparent’s, larger gifts willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. not result in any gift taxA tax on gifts that are completed from one person to another. Wisconsin does not have a gift tax, but there is a federal gift tax. We often can gift in excess of the “annual exclusion” amount that is currently $14,000.00 per donee per year without incurring any gift tax or reporting requirements. The gift tax is often misunderstood and should be discussed if undertaking any significant gifting. The gift tax lifetime “exclusion” amount is $5.34 million for 2014. or estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax..
Although it can get complicated, many of our clients who want to do significant grandparent gifting, do so with large lump sum gifts without paying any gift or estate taxThe Federal tax that is imposed on transfer of assets at death, especially to non-spouses. The current Federal Estate Tax, simply speaking, is for assets in excess of 5.34 million dollars for the year 2014. There is not currently an estate tax in Wisconsin, but approximately 20 other states still have some form of estate tax.. The advantage of a larger one time gift, if done properly, can be long term Medicaid protection after five year.
Educational Gifts and 529 Plans
Often grandparents set up a 529 College Saving Plan for grandchildren. The grandparents are often the owner of these plans.
However, what many advisors and grandparents do not consider is nursing home or assisted living implications and Medicaid. If the grandparent is the owner of the 529 Plan, this willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be an asset of the grandparent. The grandparent has the power to pull money from the 529 Plan into the grandparent’s name. That asset can be lost to a nursing home or assisted living when Medicaid is needed.
A better solution may be to have a responsible parent set up the 529 Plan. Then the grandparent gifts to that college savings plan. Any gifts made to the 529 Plan owned by a responsible adult – and not by the grandparent – can obtain long term care Medicaid protection five years after the gift was made.
Custodial Accounts or Trusts
Grandparents often set up custodial accounts in the name of a grandchild and make gifts to these accounts. This can work for smaller amounts and gifts. However, the grandchild willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be able to receive, control, and spend these assets at age 18 or 21, regardless of the grandchild’s life circumstances.
Placing a large amount in an account that the grandchild owns and that the grandchild willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. control at the age of 18 or 21, is normally not the best solution. Over the years, we’ve seen more than a few grandchildren make unwise decisions with this money when they reach the age of 18 or 21. We often invite our clients to consider the structure of a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. when leaving significant money directly to a grandchild.
Estate Planning and Trusts for Grandchildren
Some of our grandparent clients want to help their grandchildren get off to a solid part by helping them through estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity.. Trusts are often the preferred method for gifting where the gifted funds willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. not be immediately applied towards certain items such as a house purchase, a wedding, or college tuition and fees. Our preferred approach includes setting up either a revocable or irrevocable trustA trust that cannot be terminated, revoked or amended by the creating person. In Wisconsin and in estate planning an irrevocable trust can refer to a trust that is set up to protect assets from a nursing home and Medical Assistance if prepared and funded well in advance. See Using Trusts to Protect Assets from Nursing Homes that the grandparent controls, or a Medicaid trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. that willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be protected from long term care costs after 5 years.
Any subsequent significant gifts for a grandchild are then made to this trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries.. The trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. of your choice can then control the gifted funds, in trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., and apply them as you want. For example, a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. might specify that the gifted funds should be used for college expenses or health care expenses.
When the grandchild reaches a certain age, for example 25 or 30, the grandchild willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. receive any funds left in trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., unless the grandchild has drug, creditor, or other critical issues. In those instances, the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. can hold back the funds until a later date.
Experience Matters when Grandparent Gifting
As noted above, there are a number of critical considerations when making significant gifts to grandchildren. At Wokwicz Law Offices, we have decades of experience helping grandparents establish appropriate estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. trusts for gifting to grandchildren. We also have decades of experience supporting outright gifts to children and grandchildren in light of Medicaid implications.
We invite you to contact us for help preparing your next major gift or loan for your grandchildren.