Never Leave Money Directly to Grandchildren - Do This Instead

A grandmother dies leaving $40,000 to her granddaughter. The girl is 14. The money does not go to the girl. It does not go to her parents. It goes to a judge. Here are five things that go wrong when money is left directly to a grandchild, and four ways to do it properly, including one that is completely unlimited and that almost nobody uses. Timestamps 00:00 - The money goes to a judge 01:32 - Mistake 1: Naming a minor directly 02:32 - Mistake 2: One word in the law 03:58 - The tool nobody uses 05:13 - Mistake 3: Financial aid 06:43 - Mistake 4: The Medicaid look-back 08:23 - Mistake 5: It all ends at 18 09:18 - What to do instead 10:24 - Fix 2: Name a custodian 11:00 - Fix 3: A trust 11:47 - What to remember THE 2026 FIGURES IN THIS VIDEO Gift tax: Annual gift tax exclusion 2026 - $19,000 per recipient Married couples electing gift-splitting - $38,000 per recipient, reported on Form 709 Lifetime estate and gift exemption 2026 - $15 million per person, $30 million per couple, made permanent by the OBBBA Tuition paid DIRECTLY to an educational institution and medical expenses paid DIRECTLY to a provider are UNLIMITED and do not count as gifts at all - IRC section 2503(e). They sit entirely outside the $19,000 annual exclusion. Retirement accounts (SECURE Act): Most non-spouse beneficiaries must empty an inherited retirement account within 10 years Eligible designated beneficiaries are exempt: surviving spouses, disabled or chronically ill individuals, and MINOR CHILDREN OF THE ACCOUNT OWNER A grandchild is NOT a minor child of the account owner. The 10-year clock starts from day one A minor child of the owner is an EDB until age 21, then the 10-year window begins - the account must be emptied by age 31 Exception: a grandchild who is disabled or chronically ill DOES qualify as an EDB Financial aid (FAFSA federal methodology): Student-owned assets assessed at up to 20% Parent-owned assets assessed at a maximum of 5.64% That is roughly 3.5 times the impact for the same dollar UTMA, custodial and guardianship accounts all count as STUDENT assets Worked example: $40,000 to a grandchild reduces aid by around $8,000.The same money held by a parent, around $2,256. Grandparent-owned 529 distributions are NO LONGER counted as student income under the simplified FAFSA Medicaid: Look-back period is 5 years, or 60 months, in most states Gifts inside that window can trigger a penalty period The penalty begins when you apply and would otherwise be eligible, not when the gift was made Custodial accounts: UTMA accounts terminate at the age of majority in your state -18, 21, or in a few states as late as 25 On that date the full balance belongs to the young person outright WARNING: Look-back rules, UTMA ages and state estate taxes all vary by state. Confirm your own position before making any large gift. Educational only - not financial, tax, or legal advice. Rules change over time. Please confirm your situation with an estate attorney or a licensed tax professional before acting. MORE FOR RETIREES: 5 Real Reasons to Claim Social Security at 62 -    • 5 Real Reasons to Claim Social Security at...   The Widow's Penalty -    • The Widow's Penalty: Why Taxes Go Up When ...   The 2027 Social Security COLA -    • The 2027 Social Security COLA — What the N...   5 Bills You Don't Have to Pay After 65 -    • 5 Bills You Don't Have to Pay After 65 (Mo...   Front Porch Finance - the Social Security, Medicare, banking, and tax rules that quietly affect American retirees. New videos every weekday. Narration and imagery in this video are AI-generated. All figures are drawn from IRS, SSA and federal student aid sources for 2026. #EstatePlanning #Inheritance #RetirementPlanning