WealthFocus How to include your grandchild in your financial plan

Providing financial support to your grandchildren can certainly be a rewarding experience. Before writing a check, you may want to explore all of your options in order to ensure that your gifts are aligned with your and your family’s goals. Here are some things to think about when mapping out a thoughtful approach to providing financial resources to your grandchildren:

Give a gift

Every year you can give up to the “annual exclusion” amount to every one of your children and grandchildren without the need to file a gift tax return. If you are married, together you and your spouse can give double the annual exclusion amount to each beneficiary. In 2025, the annual exclusion amount is $19,000.

If you decide to make these gifts, it may be better to do so earlier in the year to make sure you take advantage of the exclusion. Many families wait until the winter holiday season, but if you don’t use the exclusion in a given year, you lose the ability to make that year’s gift. Consult with a tax professional to understand the implications of gifting and ensure compliance with current tax laws.

Consider who will control the gift

While you can make gifts outright to your grandchildren, you may instead choose to make gifts to them in certain accounts or structures that designate someone else to control how the gifts are invested and when they are distributed to your grandchildren.

You can fund custodial or 529 accounts with annual exclusion gifts (or with more than that if a larger gift is consistent with your goals). If you are the custodian of the custodial account or the owner of the 529 account, you control both the investments in and distributions from those accounts. However, since you are the owner of the accounts, your grandchildren must come to you to request a distribution when they want or need money from the accounts and cannot direct you to make any distributions. While that may be desirable for other reasons, it may lead to logistical problems when making timely tuition payments, for example. Depending on the terms of the state’s plan you have, you may have the ability to transfer ownership of the plan to another eligible owner, including your grandchild or your grandchild’s parents.

Alternatively, you can make these gifts in a trust and appoint a trustee – who can be your children, their spouses, or a trusted friend or professional advisor, or a corporate trustee – to control the trusts.

If you make your children the owners of the accounts (especially of custodial accounts), they shouldn’t use the money to pay for expenses that might be considered their “parental obligation” (such as providing food, clothing or shelter for their children), which could have negative tax consequences.

Determine when your grandchildren get control of the funds

In some instances, you can determine when your grandchildren get control of the funds you’ve set aside for them.

Most types of trusts give you the flexibility to determine when and whether your grandchild can either assist in managing the assets, demand distributions or otherwise be involved in the administration of the trusts.

A special kind of trust (called a “minority” or “§2503(c) trust”), however, requires that your grandchild must be given the right to withdraw the entire principal at age 21 – but if he or she does not, the trust can continue under the terms you set. Similar to a minority trust, in the case of a custodial account, your grandchild becomes the owner of his or her account by law upon reaching the ages of 18 or 21, depending on the state’s law. Since minority trusts and custodial accounts could become quite valuable after many years of gifting, you may prefer instead to make gifts to grandchildren using other techniques, which can both delay the time they get control of the funds and allow the wealth you set aside for them to accumulate. Trusts have specific legal and tax implications. Consult with a legal and/or tax professional to understand these before setting up a trust.

How might gifts impact financial aid for college?

In general, assets owned by your grandchildren (custodial accounts) will reduce eligibility for financial aid more than assets owned by their parents. If you think your grandchildren might want to apply for financial aid and could otherwise qualify, you may want to consider structuring your gifts to reduce any potential impact on their future financial aid eligibility.

For instance, assets owned by a grandparent or a trust for the grandchild’s benefit are generally not counted at all in a financial aid application. However, income of the financial aid applicant (i.e., your grandchild) generally will reduce eligibility for aid. Distributions from trusts or from grandparent-owned 529 accounts have previously been treated as the grandchild’s income on the Free Application for Federal Student Aid form (FAFSA) – even if payments are made directly to the school – reducing aid eligibility. The FAFSA released in December 2024 for the 2025-26 school year does not ask about distributions from grandparent-owned 529 accounts, which therefore should not count against the student for financial aid purposes. It is advisable to review the FAFSA carefully and work with a financial aid consultant or other professional to confirm that distributions from a grandparent-owned 529 account won’t affect the student’s financial aid.

Communicate with a J.P. Morgan professional if you’d like to talk through how best to gift assets to your loved ones, including your grandchildren.