Grandparents Day, observed on the first Sunday after Labor Day, provides a meaningful reminder: as we celebrate the love, wisdom, and support grandparents give, it’s also a time to think about how to protect that legacy legally. In 2025, Grandparents Day fell on September 2nd, making early September a fitting moment to revisit, or begin, your estate plan with grandchildren in mind.
Many grandparents generously support grandchildren, through gifts, tuition help, or simply helping out. In fact, a recent survey found that 96% of grandparents provide some form of financial support to grandchildren, and collectively U.S. grandparents spend an estimated $238 billion annually on their grandkids. The Senior List
Yet generosity without a strategy can lead to unintended tax burdens, loss of control, or family conflict. A thoughtful estate plan ensures that your gifts and intentions carry forward in a controlled, legally sound way. Below, we explain how grandparents can make the most of tools like trusts, gifting strategies, 529 plans, and more, while preserving flexibility and minimizing tax exposure.
Why Grandparents Should View Estate Planning as Legacy Planning
Estate planning is often framed in terms of passing assets to children, but grandparents have unique opportunities and challenges. Consider these compelling reasons to act:
- Wealth transfer is accelerating. The so-called “Great Wealth Transfer” is underway: baby boomers are projected to transfer $84 trillion in wealth by 2045, much of it to younger generations. Wikipedia
- Many Americans lack formal plans. Over 72% of Americans have no valid will, meaning their assets could be distributed by default state rules rather than according to personal wishes. plannedgiving.com
- Generational drift weakens legacy. Roughly 70–90% of family wealth is estimated to be lost by the third generation without proper safeguards. fingerlakeswm.com
- Children and grandchildren may one day depend on your support legally. Estate planning can provide protection in emergencies or transitions.
By proactively structuring your legacy, you help ensure the next generation receives support in the spirit and form you intend, without being undermined by taxes, creditor claims, or lack of clarity.
Key Tools & Strategies for Grandparents to Protect Their Legacy
Below are the core techniques grandparents can use, with pros, cons, and best practices.
1. Gifting & the Annual Exclusion
Each year, the IRS allows annual gifts up to a certain amount per recipient without incurring gift taxes or reducing your lifetime exemption. In 2025, that annual gift tax exclusion is $19,000 per recipient. savingforcollege.com+1
How to use it well:
- You can gift up to $19,000 per grandchild without filing a gift tax return or eating into your lifetime exemption.
- Married couples can “split gifts,” meaning each spouse can gift $19,000 to the same grandchild, for a combined $38,000 gift.
- Gifts above the annual exclusion must be reported on IRS Form 709 and count against your lifetime gift-and-estate tax exemption, currently $13.99 million (2025). savingforcollege.com
- Be mindful: if you gift above the exclusion and die within a short period, portions may be “pulled back” into your taxable estate.
Limitations & considerations:
- The gift must be a present interest (the recipient can use it immediately).
- You cannot “carry forward” unused exclusion in future years.
- Large gifts may affect your own financial security; never overcommit.
2. Superfunding 529 Plans (Front-Loading Educational Gifts)
A powerful strategy is to pour educational funding into 529 college savings plans in a way that accelerates tax-advantaged transfers and reduces your taxable estate.
Why 529s are attractive:
- Contributions to 529 plans are excluded from your taxable estate, reducing estate tax risk. Nolo+2CLA Connect
- You retain control of the funds (as the account owner), including the ability to change beneficiaries. carterwealth.com
- Recent FAFSA changes (as of the 2024–2025 academic year) now exclude distributions from grandparent-owned 529s from student income, improving financial aid eligibility. carterwealth.com
Superfunding (5-year election):
- You can contribute five times the annual exclusion in one year and treat it as if you contributed evenly over five years. For 2025, that means $95,000 per grandchild. savingforcollege.com+2carterwealth.com+2
- Married couples could double that to $190,000 per grandchild.
- To do so properly, you must file Form 709 indicating the 5-year election.
- Note: once you front-load, you cannot make additional gifts to that beneficiary without using up lifetime exemption over that 5-year window.
Other benefits & caveats:
- Direct tuition payments to an educational institution are exempt from gift tax and generation-skipping transfer (GST) tax, no matter the amount, so long as payment is made directly to the school. AMG National Trust
- However, direct payments must be for tuition only, not room and board or books.
- Be alert: overly aggressive superfunding may affect your estate’s flexibility or liquidity.
- If the donor dies before the 5-year period ends, a pro rata portion may be pulled into their taxable estate.
3. Trusts for Grandchildren
Trusts are powerful because they allow you to control when and how grandchildren receive assets, protect against creditors, and embed conditions.
Types of trusts useful for grandparents:
- Dynasty (Generation-Skipping) Trusts: Designed to benefit grandchildren and further generations while minimizing exposure to generation-skipping transfer (GST) tax.
- Irrevocable Gift Trusts: You gift assets into the trust now, removing them from your estate, while naming terms for grandchildren’s benefit.
- Education Trusts: Specialized trusts that restrict distributions for educational purposes, tuition, books, etc.
- Spendthrift Provisions: Prevent beneficiaries from squandering assets or allow trustee oversight.
Key planning considerations:
- Funding an irrevocable trust means relinquishing control of the assets to the trust.
- Consider how distributions will be triggered (age milestone, achievement, etc.).
- Ensure the trust is drafted compatibly with federal and state tax laws (especially GST rules).
- Regularly review trusts, changing family dynamics, changes in tax law, or financial shifts may require updates.
4. QTIP / AB Trusts & Marital Sharing Agreements
If your estate is substantial or married, you can use marital trusts (QTIP, AB trusts) to:
- Provide for your spouse during their lifetime, then for your children or grandchildren.
- Control how the remainder is distributed after your spouse’s death.
- Minimize estate taxes by making use of both lifetime exemption amounts.
Though this strategy is more about intergeneration transfer including your children, it can structure the path toward grandchildren thoughtfully.
5. Life Insurance & Irrevocable Life Insurance Trusts (ILITs)
Life insurance, when properly structured, can provide a liquidity cushion for your estate or a vehicle to leave net proceeds to grandchildren.
- You can own a life insurance policy inside an Irrevocable Life Insurance Trust (ILIT) so that proceeds are excluded from your taxable estate.
- The trust can be structured to pay premiums via gifts or contributions, and the eventual payout can fund grandchildren’s futures or equalize inheritances.
Caution: For estate tax exclusion, the trust must be irrevocable and properly structured so you do not retain incidents of ownership.
6. Gifting via Personal Property or Appreciated Assets
Grandparents may gift property, stocks, real estate, collectibles, but this requires care.
- Gifts above the annual exclusion must be reported, and gifts of appreciated property may trigger capital gains issues for the recipient (depending on basis).
- If the gift is into a trust, capital gains planning may allow for tax-free step-up on death rather than using up your lifetime exemption.
7. Charitable Giving with Grandchild’s Benefit
Pairing philanthropy with legacy goals is possible:
- Charitable remainder or lead trusts: Can benefit charities for a period, then pass assets to grandchildren.
- Donor-advised funds or charitable gifts made during lifetime can accomplish philanthropic goals and reduce taxable estate.
Putting It Into Action: A Grandparents’ Planning Checklist
Below is a step-by-step guide to help grandparents turn strategy into action.
| Step | Action | Why It Matters | Tips |
| 1 | Inventory assets & goals | Know what you have, what you want to leave, and to whom | Include real estate, investment accounts, personal property, business interests |
| 2 | Determine priorities | Decide whether you want flexibility, control, tax efficiency, or early gifting | Sometimes compromise or hybrid plans work best |
| 3 | Engage an estate planning attorney | To draft legally robust documents | Use local counsel familiar with your state’s laws |
| 4 | Choose and fund a 529 or educational trust | Move money out of estate while supporting grandchildren | Use superfunding if appropriate |
| 5 | Structure a gifting plan | Use annual exclusions, trusts, direct payments | Ensure consistency with your lifetime exemption plan |
| 6 | Draft or update a will/trust | Name trustees, guardians, successor beneficiaries | Consider whether trustees can also act as pension overlords |
| 7 | Create or integrate a ILIT (if using life insurance) | Keep the policy’s proceeds out of your taxable estate | Ensure premium payments and ownership handled correctly |
| 8 | Communicate with family | Express your intentions, ensure transparency | Reduces confusion and conflict |
| 9 | Review regularly | Laws change, families evolve | Set a calendar reminder every 3–5 years |
FAQs for Grandparents on Estate Planning
Q1. Does funding a 529 plan reduce my control over the funds?
No. As the account owner, you retain control (investment decisions, changing beneficiaries) even though the funds are treated as gifts. carterwealth.com
Q2. What happens if I die before the 5-year superfunding period is complete?
If you used the 5-year election and die within the period, a pro rata portion of the gift may be brought back into your taxable estate. That’s why liquidity and contingency planning are crucial. savingforcollege.com+2carterwealth.com
Q3. Can I pay grandchild’s tuition directly without gift tax consequences?
Yes. Paying tuition directly to the educational institution is exempt from federal gift and generation-skipping transfer taxes, even if the amount is more than the annual exclusion. AMG National Trust
Q4. What about GST (generation-skipping transfer) tax?
Transfers to grandchildren may trigger GST tax if you exceed your GST exemption. Proper trust structure and planning can mitigate this.
Q5. Should I involve my children (the parents) in the planning?
Yes. Collaborative communication can avoid surprises, reduce conflicts, and synchronize plans (for example, managing 529 accounts or coordinating inheritances).
Real-World Example: The Jackson Family
Here’s a hypothetical scenario illustrating how grandparents can proactively structure and protect a legacy.
Background:
Alice and Robert, in their early 70s, have 3 grandchildren, ages 10, 14, and 18. Their estate (excluding gifts) is worth about $5 million. They wish to support education, help the grandchildren get started in adult life, and leave a legacy without burdening their children or heirs.
What they did:
- Front-loaded 529 contributions:
- They contributed $95,000 for each grandchild’s 529 in one year, electing to spread it over five years (thus averaging $19,000 annually).
- This allowed them to remove $285,000 from their estate all at once (assuming three grandchildren).
- Established an irrevocable educational trust:
- The trust holds funds to supplement the 529 for items like summer programs, graduate school, or travel.
- Distributions are at the discretion of a trustee, making sure funds are used for intended purposes.
- Purchased life insurance via ILIT:
- They funded an ILIT to pay the premiums, keeping proceeds outside their taxable estate.
- Upon their deaths, the life insurance will supplement and equalize gifts among grandchildren.
- Drafted a dynasty trust:
- After their children (the grandchildren’s parents) receive their share, the remaining assets pass to grandchildren with GST protection.
- They set age-based tiers: distributions at 25, 30, and 35, balancing flexibility and control.
- Communicated intentions:
- They held a family meeting explaining their vision, trust rules, and expectations, reducing surprise or conflict.
This plan allowed Alice and Robert to reduce estate exposure, maintain control, provide for education and achievement, and protect intergenerational wealth.
Build an estate plan that truly protects your legacy for generations
Grandparents wield a unique opportunity: to shape the lives of descendants even beyond their own generation. But without legal structure, love and generosity may not translate into protection, clarity, or enduring impact.
As Grandparents Day 2025 passed on September 2nd, let it serve as more than a sentimental marker, let it spark purpose. Whether you’re just starting or revisiting an estate plan, now is the time to:
- Get professional guidance from an estate planning attorney.
- Structure gifting and trust vehicles that align with your values and goals.
- Communicate your blueprint with family to reduce surprises or disputes.
- Review and adjust regularly, tax laws, financial status, family dynamics evolve.
If you’re ready to build an estate plan that truly protects your legacy for generations, contact Estate Planning Law Center to schedule a consultation. Let us help you turn the love you show into a legally sound, enduring gift.
