As a grandparent and high-net-worth individual, you want to set your grandchildren up for success—whether by funding their education, helping with a first home, or simply giving them a financial head start.
But here’s the catch: taxes can quickly take a bite out of your generosity if you’re not careful.
Without proper planning, well-intentioned gifts can trigger unnecessary tax burdens that reduce the amount your loved ones receive. You wouldn’t want your hard-earned wealth to go to taxes when it could make a real difference in a grandchild’s life, right?
Then, you should leverage the most tax-efficient ways to pass on wealth. Here are tax-smart ways to give financial gifts to your grandchildren so your generosity reaps the biggest impact instead of excessive taxes.
Understanding the Tax Implications of Financial Gifting
Giving financial gifts to your grandchildren is a generous and thoughtful way to pass on wealth—but before you start writing checks, it’s crucial to understand the tax rules behind it.
Fortunately, the IRS allows exclusions that let you give gifts tax-free.
In 2025, the yearly gift tax exclusion is $19,000 per recipient, meaning giving this amount to each grandchild does not count toward your lifetime gift and estate tax exemption. As of 2025, the lifetime exemption is $13.99 million—you can give up to this amount over your lifetime before facing federal gift or estate taxes.
If you give more than the annual exclusion in a given year, you must report it to the IRS via Form 709. These gifts only trigger taxes once your cumulative lifetime gifts surpass the exemption limit.
If you plan to give beyond the annual or lifetime limits, strategic approaches—like spreading gifts over multiple years or using tax-advantaged accounts—can help minimize tax exposure. The key is knowing how to structure your gifts to maximize their impact while staying within tax guidelines.
Tax-Efficient Strategies for Gifting to Grandchildren
Gifting your grandchildren is a form of strategic wealth transfer. Done right, it can minimize tax liabilities and maximize long-term benefits for you and your family. Here are some of the smartest ways to structure financial gifts while keeping dues in check.
Leverage the annual gift tax exclusion
A simple yet effective strategy is fully utilizing the $18,000 annual gift tax exclusion per recipient following the 2024 limit. If both you and your spouse contribute, you can gift $36,000 per grandchild annually—completely tax-free. Over time, this can add up to a significant wealth transfer without touching your lifetime exemption.
Set up a 529 college savings plan
If you’re a grandparent who wants to support education, a 529 plan is a tax-advantaged way to save for college. Contributions grow tax-free, and withdrawals for eligible education expenses— tuition, books, housing, etc.—are also tax-free.
You can even superfund a 529 by front-loading five years’ worth of gifts at once—up to $95,000 per grandparent in 2025—without exceeding annual gift tax limits.
Create an irrevocable trust for asset protection
An irrevocable trust can safeguard wealth for larger gifts while ensuring funds are used responsibly. Trusts provide asset protection, estate tax benefits, and control over how and when your grandchildren access the money.
Popular options include dynasty trusts. This type allows assets to grow tax-free for multiple generations.
Gift stocks and appreciated assets wisely
Instead of gifting cash, consider transferring stocks, real estate, or other appreciated assets. This plan allows you to avoid capital gains tax on appreciated investments while passing them to grandchildren, who may be in a lower tax bracket when they eventually sell. However, it’s important to structure these transfers carefully to maximize tax advantages.
Pay tuition and medical expenses directly
A little-known tax break allows grandparents to pay tuition and medical expenses directly to an institution or provider without triggering gift taxes. This rule means you can cover a grandchild’s private school, college tuition, or medical costs without it counting toward your gift tax limits—freeing up the annual exclusion for other financial gifts.
Establish a Roth IRA for your grandchild
If your grandchild earned income—say, from a summer job or part-time work—you can fund a Roth IRA for them. Contributions grow tax-free, and withdrawals while retired are also tax-free—making this an excellent long-term wealth-building tool.
You can gift up to the annual IRA contribution limit of $7,000 as of 2024 without using your gift tax exemption.
Legacy That Lasts
The joy of giving is even sweeter when you know your gifts are making the most tremendous possible impact. By structuring your financial gifts wisely, you can pass on wealth without letting taxes eat away at your generosity.
But here’s the thing: wealth transfer isn’t one-size-fits-all. The best tactics depend on your unique financial picture, and that’s where expert guidance makes all the difference.
Working with trusted financial planning services means you can protect your legacy and optimize your gifts, and your generosity goes precisely where you intend without unintended tax consequences.
Find out why our advisory services are worth the fee, and see how Tencap Wealth Coaching can help you build a smarter, tax-savvy gifting plan.
Disclaimer: The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Utah or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
