What are the most effective ways to make substantial gifts to grandchildren?
For grandchildren who are out of college: Simply make an outright gift of up to $11,000, which is the most you can give in 2005, without tax consequences. If you’d like to make an additional gift, wait until 2006. Assuming this grandchild is reasonably responsible, an outright gift provides maximum flexibility.
For grandchildren who are in college: Don’t do anything before finding out if they are receiving financial aid that would be adversely affected by your gifts. If that won’t be a problem, outright gifts within the $11,000-per-recipient-per-year gift tax annual exclusion may be best. If financial aid is a concern, defer the gifts until the aid package for the student’s final year has been announced.
For younger grandchildren: Rely upon 529 savings accounts as a tax-advantaged way to save for college. If you do not wish to bear the burden of administering these accounts, you might name one of the grandchild’s parents as account owner, for each account. There may be some impact on financial aid eligibility but it’s probably better to have money saved for college rather than count on financial aid, which is an uncertain prospect.
