I want to leave my grandson a $500K inheritance and skip my daughter. Can I gift it to him directly?
I want to leave my grandson a $500K inheritance and skip my daughter. Can I gift it to him directly?
In the next 20 years, an estimated $84 trillion in assets is expected to change hands, with younger generations — including Gen Xers, millennials and Gen Zers and Gen Alphas — inheriting funds from older generations.
If you’ve saved and managed your money well all your life, you may be eager to provide future generations with an inheritance, too. But what if you want to skip a generation?
Say you’re in a position to give your grandson a $500,000 inheritance, but you don’t want to go through his mother — your daughter — to pass along that wealth. She may have a history of poor financial decisions and you fear she might seize the money to pay off her own debts or buy something extravagant.
You have the right to designate the heir of your choosing and to skip your daughter. But it’s important to go about it wisely as there are legal and financial implications to doing so.
There are a variety of reasons a grandparent may want to leave an inheritance to their grandchild and not their own adult child. For one thing, you may feel you’ve provided enough financial support to your adult kids, and want to make sure your grandkids get their share.
A 2024 Savings.com report revealed that 47% of parents are providing some type of financial support to their adult children — averaging out to $1,384 a month, or roughly $16,600 per year. If you’ve been handing out a similar amount of money for a long time, it wouldn’t be unreasonable to exclude an adult child from your estate.
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In addition to your concerns around your daughter’s financial decision-making, you may not want her to control or withhold funds you’d like to see go to your grandchild for a specific purpose — particularly if it is one that daughter doesn’t support.
Estrangement, which is relatively common between fathers and their children, is another reason you may want to skip a generation. National Institutes of Health reports that in 2023, 6% of Americans were estranged from their mothers, while more than one in four — 26% — were estranged from their fathers.
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On a more positive note, there may be tax advantages to skipping a generation. The key is to approach the process carefully, seeking legal and financial advice wherever possible.
If you name your grandchildren as sole beneficiaries, your own children may contest your will, bottlenecking the process of settling your estate. All wills go through probate in court, and any challenges can delay beneficiaries receiving their inheritance.
You can also designate your grandchildren as beneficiaries on individual accounts, like your bank or brokerage accounts.
Another option that might provide unique tax advantages is a generation-skipping trust, which applies when you’re passing assets down to anyone 37.5 or more years younger than you.
When you pass down assets to your children, those funds are subject to estate taxes. In turn, when your own children pass assets down to your grandchildren, estate taxes are levied again. A generation-skipping trust lets you avoid that middle round of taxes.
But be aware that if assets in a generation-skipping trust exceed $14 million, they may themselves be subject to taxes, of 18% to 40%.
It’s a good idea to consult an estate-planning attorney to see what they recommend. They should be able to walk you through your options and explain the financial implications of each so you can make a decision you’re comfortable with and that will benefit your grandchildren.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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