Help Your Clients Celebrate the Upcoming Holidays with an Up-to-Date Estate Plan

National Grandparents Day: Three Things to Consider Before Your Clients Make a Gift to Their Grandchild

Grandparents often love the opportunity to shower their grandchildren with gifts. In most cases, these gifts are given on holidays and birthdays and commonly consist of an item that may have been at the top of their grandchild’s wish list. However, as you are discussing your client’s financial plans for the future, it is not uncommon for those plans to include the desire to leave more substantial gifts to their grandchildren. Christmas and birthday gifts can leave lasting impressions on grandchildren, but some grandparents seek to provide more substantial gifts that may assist their grandchildren in building their savings account, furthering their education, or purchasing their first home, to name just a few. Here are some often overlooked considerations to assist you in guiding your clients and analyzing the important details of making a gift. 

  1. When do they want to make the gift?  

The initial and crucial discussion with your clients should revolve around determining the ideal timing for gifting to their grandchildren. Various factors can influence your clients’ decisions regarding when to leave a gift. If their grandchildren are slightly older and considering college, your clients might consider gifting them funds to support their chosen educational path. Similarly, if they have adult grandchildren who are on the verge of buying a home, planning a wedding, or expecting their first child, this could prompt your clients to offer a monetary gift sooner rather than later to assist during these significant life moments. The act of giving a gift during their lifetime enables your clients to witness the profound impact it can have on the recipients, which can be exceptionally fulfilling. 

While gifting during one’s lifetime certainly has its advantages, gifts given after your client has passed away, in the form of an inheritance, can carry equal significance. For younger grandchildren, planning for their postsecondary education, purchasing their first home, or starting their own business may be in the distant future. In cases such as these, your clients may feel more comfortable leaving money to their grandchildren at their death since the need is not immediate. Ultimately, your clients’ goal may be to provide their grandchildren with a gift at death that provides them with future assistance and leaves them with a lasting memory of their love and generosity. 

  1. Can they afford to leave a gift to them?  

As a trusted financial advisor, your role often involves assisting clients in creating long-term financial plans to achieve their goals while considering the ever-changing cost of living. In this process, you may need to inform clients that some of their aspirational financial gifts may not be feasible given their current financial situation.

When clients express the desire to leave a gift to their grandchildren, your responsibility is to help them determine if it is financially viable. Planning for aging clients requires careful consideration and discussion of potential costs for future care, especially if they might require substantial or institutionalized medical or long-term care. The Administration on Aging estimates that at least 70 percent of people who are 65 today will require care in some context. Notably, the national median annual costs for nursing home care in 2023 have risen to approximately $108,405 for a private room, compared to $92,376 in 2016. The average length of stay in long-term care is 3.2 years. Just over 20 percent of residents will require care for 5 years or longer. In the case of married clients, leaving gifts to grandchildren should be approached with caution, considering the potential needs of a surviving spouse who may rely on any remaining funds to support themselves.

While clients may have the noble intention of providing their grandchildren with financial gifts either during their lifetime or after their passing, it may not always be practical or feasible based on their current and future financial circumstances. If clients are determined to make such gifts, it is advisable to recommend consultation with an experienced estate planning attorney. This way, a well-crafted plan can be developed to make the gift to grandchildren when the client is no longer living, if possible.

It is essential to educate clients about their options for gifting from a financial perspective, as some may have sufficient assets to make gifts during their lifetime or as part of their estate, while others may not. As a trusted advisor, your guidance can help clients make informed decisions about their financial future and the legacy they wish to leave behind.

  1. What impact will the gift have? 

Lastly, the best approach for ensuring that your clients understand the full impact of their gift is to discuss both the potential positive and negative aspects of gifting to grandchildren. Gifting to a grandchild and the gift’s subsequent impact may depend largely on your clients’ goals in making the gift. As it is, giving grandchildren monetary gifts can accomplish the goal of providing opportunities that may not have been available to your clients in their youth. Ultimately these gifts can create a profound and lasting impact on their grandchildren’s future. 

On the other hand, depending on how the gift is structured, it could impact the grandchild’s ability to receive assistance with education by impacting the assets required to be listed on their Free Application for Federal Student Aid (FAFSA). In some cases, providing a large sum of money to a child or young adult can have the negative consequence of disincentivizing them to obtain or maintain employment or work toward a higher education. It could also result in excessive or irresponsible spending habits. You should advise your clients that the negative side effects can often be mitigated by working with an experienced estate planning attorney who can create a strategic plan to leave an inheritance while avoiding potential pitfalls. 

If you have clients who are looking for ways to gift money or property to their grandchildren and would like to discuss different ways to plan and execute those gifts, give us a call.