Key Takeaways
- A caller on Allworth Financial’s Money Matters podcast said his father is in his late 70s, got an $800,000 settlement and wants to pass much of it on to his three grandchildren.
- Gifts of up to $19,000 per person this year and $20,000 per person in 2027 need no gift tax return, so a gift in December and another in January can move $39,000 to each grandchild with no Form 709.
- With three grandchildren, that’s $117,000 given away by the end of January without a return.
- A gift to a trust that counts as a future interest needs a Form 709 at any size, and so do gifts split with a spouse, though filing one rarely means any gift tax is owed.
If you’re planning a big gift to your kids or grandkids, you may be able to skip a tax form just by timing it around New Year’s.
The IRS just raised the gift tax annual exclusion for 2027. That’s good news for anyone with money to hand down, since a gift made by Dec. 31 counts against this year’s limit, and one made in January counts against next year’s higher one.
An $800,000 settlement, with the grandkids in mind
Consider a caller on Allworth Financial’s Money Matters podcast, who phoned in about his father. The father is in his late 70s and already pays for his daily expenses. “He came into a lump sum of money from a settlement of about $800,000,” the caller said. “His plan for this money is to use some of it to supplement his lifestyle, probably about $20,000 a year.”
The rest is meant for the father’s three grandchildren, ages 8 to 16. He wants to “invest it and pass it on to his grandchildren down the line,” the caller said, over the next 10 to 20 years.
On the show, Pat McClain suggested one way to set that up: “One thing you could do is buy an immediate annuity that’s going to generate the $20,000 or $25,000 a year, and take the rest and distribute it to a trust for the grandkids today, so it’s not in his estate.”
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$39,000 per grandchild, a few weeks apart
For gifts made this year, you can give each person up to $19,000 without it counting as a taxable gift, and the limit applies separately to each person you give to. If you give one person (other than your spouse) more than that in a year, you generally have to file a Form 709 gift tax return. The giver files it, never the grandchild. For 2027, the limit rises to $20,000.
So let’s say the father gives each grandchild $19,000 before Dec. 31, then $20,000 more in January. Each gift stays within its own year’s limit, so neither one needs a return. Across three grandchildren, the two rounds add up to $117,000:
| Gift | Each grandchild | All three grandchildren |
|---|---|---|
| December 2026 | $19,000 | $57,000 |
| January 2027 | $20,000 | $60,000 |
| Total | $39,000 | $117,000 |
The January gift does use up all of 2027’s limit for that grandchild, though. A birthday check from Grandpa later in 2027 would push that year’s gifts past $20,000, and then he’d have to file a return.
With a trust, he may need a Form 709 anyway
If the father goes with McClain’s trust idea, he may have a form to file after all. A gift of a future interest (one the grandkids can’t use until later) gets no annual exclusion, so it needs a return even if it’s under $19,000. Money put in a trust can count as one, depending on how the trust is set up. And if he’s married, he’d also need a return if he and his wife chose to split gifts, whatever the amount.
He’d almost certainly owe no gift tax either way, though. Andy Panko said on the Retirement Planning Education podcast that people rarely owe tax on a gift unless they’ve given away more than $15 million over their lifetime. That’s far more than this whole settlement. He added that whoever receives a gift never pays tax on it. Still, a return is extra work, and Panko said it’ll cost a bit to have someone prepare it. His advice: “Why do that form if you don’t have to?”
Get December’s gifts done first
If this were my dad, I’d make the December gifts before Dec. 31, whatever the family decides about an annuity or a trust. That’s $57,000 to the grandkids with no form to file, and the January round can wait until the bigger plan is settled. And if a trust turns out to be the right home for the rest, I wouldn’t pass on it just to avoid a Form 709.
Of course, every dollar he gives away is one he can’t spend. After both rounds, he’d still have $683,000 of the settlement behind the $20,000 a year he wants, which is plenty of cushion. Still, the family should check that against his other plans before any money moves. And 2028’s limit isn’t set yet, so nobody knows how much each grandchild could get without a return in January 2028.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
