Giving As A Grandparent: Essential Dialogues

What does it mean to give as a grandparent? Love and support form the foundation of a giving relationship, but grandparents can have a unique opportunity to leave a lasting impact on their grandchildren’s lives in other ways. For those with the financial means, gifting assets can help shape the future of their grandchildren and generations to come. Coordinating with parents and seeking guidance from a financial planning team can result in a giving strategy that all generations are comfortable with.

Grandparents provide financial support to grandchildren in a variety of ways. According to a survey conducted by AARP, grandparents spend an average of $2,562 annually on their grandchildren, or about $179 billion annually across the US^1,2. This financial support can range from fun gifts to paying for everyday expenses, supplementing educational funding, and establishing trusts for future generations.

Each situation is unique, and grandparents need to consider how much they can comfortably contribute without compromising their financial security. At this stage, it’s often beneficial to seek the advice of a financial planning professional. The next step is to have a family discussion about how grandparents can best make a financial contribution that will positively impact their grandchildren.

Guidelines for Meaningful Conversations

Discussions about financial contributions from grandparents start with a meaningful conversation that either parents or grandparents can initiate. An essential first step is to have a frank and open dialogue about the funds available and how using these funds can be optimized. Here are a few suggestions to help navigate the conversation.

Understand Perspective: It’s important to approach the conversation with respect, open communication, and an understanding of both the parents’ and grandparents’ perspectives. One of the most critical aspects of the discussion is ensuring that the parents’ wishes are acknowledged and understood. Grandparents can emphasize the desire to contribute in a way that aligns with the parents’ vision and aspirations for their children and that their contributions will enhance parental efforts, not replace them.

Discuss Shared Goals: Parents and grandparents can find common ground by discussing shared goals for the grandchildren’s future. Parents can talk about plans for their children’s education, personal development, or long-term financial well-being.If there are specific needs or opportunities for financial support, parents should communicate them clearly to help grandparents understand the purpose and impact of their contributions.

Maintain Open Communication: Encourage an ongoing dialogue about financial matters by keeping the lines of communication open between family members. Regular communication can help grandparents feel connected and involved. Parents can offer updates on the grandchildren’s progress, share financial milestones, or discuss changes in circumstances that may trigger a need to review contributions. It’s also important to remind grandparents that their love, time, and presence in their grandchildren’s lives are cherished more than their financial support.

Considering Options For Giving

Once there is a mutual understanding of expectations, responsibilities, and how parents will utilize the contributions, it’s time to explore grandparents’ different options for financial giving. How can financial contributions by grandparents best play a role in building a secure future for grandchildren?

This is where long-term financial planning comes into play. Working with a financial planning professional can help families take advantage of opportunities to craft the right giving plan for their specific family circumstances. Options like 529 college savings plans, trusts, or UGMA custodial accounts can provide lasting benefits for the grandchildren’s financial well-being.

Families need to be aware that there are regulations, tax codes, and investment vehicles that may have an impact on giving by grandparents and are subject to change over time. A financial planning professional can help grandparents create, maintain, and alter if necessary, an optimized financial planning strategy.

For example, 529 college savings plans, one of the most popular ways for grandparents to make a meaningful contribution to their grandchildren’s futures, are being impacted by changes to the Free Application for Federal Student Aid (FAFSA) program. According to the College Savings Plan Network, 529 plan savings accounts grew from 10.1 million in 2009 to 15.7 million in 2021^, and the average 529 account balance grew from $13,188 in 2009 to $30,652 in 2021³. This amount is expected to grow even more due to the recent changes around FAFSA³. The new rules, effective for the 2023-2024 school year, will no longer count distributions from grandparent-owned 529 college savings plans as untaxed student income, and they will not have a detrimental impact on aid eligibility⁴. Many grandparents are also unaware that they can “superfund” their contributions to their grandchildren’s 529 plans by gifting five years of contributions into one calendar year for a beneficiary⁵.

Whether you’re just beginning to think about how grandparents can contribute to a grandchild’s education or looking for an assessment of your family’s current long-term financial plan, we’re here to help. Treehouse Wealth’s professional financial advisory team can guide your family through the complexities of transferring intergenerational wealth by ensuring that you make informed decisions that align with your unique needs and aspirations. If you’re unsure where to begin, check out our  blog Creating A Legacy that Lasts or reach out to a member of our team – we’d be more than happy to chat. A professional team can be a valuable addition to help impact a family’s financial outcomes.