To leave money to grandchildren, you can make annual gifts, use trusts (like UTMA or irrevocable trusts) for management, name them in a will/trust, or use specialized accounts like 529 plans for education, balancing tax implications and ensuring funds are protected, especially for minors, often requiring an estate planning attorney for best results.
Custodial accounts (UGMA/UTMA)
Custodial accounts, like Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts, are ideal ways to set aside money that's controlled by an older relative until the grandchild reaches adulthood.
You can contribute to a 529 plan for your grandchild, and that money will grow free from federal or state taxes. In the past, money from a grandparent's 529 account would reduce the amount of financial aid your grandchild might qualify for by up to 50%.
Options for saving and investing for your grandchildren
State-administered 529 education savings plans are the go-to choice for many families, and their generous tax benefits are a big reason why. The money your grandchild withdraws for qualified education expenses — including private K-12 education expenses — is completely tax-free.
There are various ways you can gift money to your grandchildren, including:
Custodial accounts (UGMA/UTMA)
With a custodial account, you can either save or invest for your grandchild's future. The custodian, usually a parent or grandparent, is in charge of managing the account while the child is still a minor (which could be under age 18 or 21, depending on the state of residence).
One can also open up TFSAs for family members including minors, as well as to set up TFSAs for specific purposes like paying off a child's education.
A 529 plan is generally better for long-term college savings due to significant tax advantages and potential for higher investment growth, while a High-Yield Savings Account (HYSA) offers liquidity and safety for shorter-term goals, as its variable rates can fluctuate but offer easy access without penalties, making it better for emergencies or near-term education expenses where penalties and taxes on earnings might apply with a 529. Choose a 529 for maximizing college funds and an HYSA for flexibility and safety.
The California Kids Investment and Development Savings Program (CalKIDS) is a universal savings account program launched in 2022 that creates 529 college savings accounts (CSAs) for every child born in the state of California. CalKIDS gives families a jumpstart in saving for future college or career training.
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
Step-Up in Basis for Inherited Assets
One tax advantage of leaving assets after death is the step-up in basis. This provision allows heirs to inherit assets at their fair market value at the time of death, effectively resetting the capital gains tax to zero for any appreciation during the decedent's lifetime.
You can gift a grandchild up to the annual gift tax exclusion amount (around $19,000 per person in 2025/2026) without any tax implications or reporting; gifts exceeding this amount must be reported on a gift tax return (Form 709) but only count against your substantial lifetime gift tax exemption (nearly $14 million in 2025), meaning you likely won't pay tax until you've given away massive sums over your lifetime. Married couples can combine their exclusions to give double.
A trust can protect your assets by ensuring they're distributed according to your wishes. Other advantages a trust offers include avoiding the probate process and potential tax benefits. A revocable trust offers flexibility in changing the terms of the trust agreement by executing an amendment to the document.
Perhaps the simplest way to leave an inheritance to your grandchildren is to name them as beneficiaries in your will or trust to receive a specific amount of money or a percentage of your total accounts and property.
You generally won't find 7% on standard savings accounts, but can find it on Regular Saver Accounts (like First Direct or Co-operative Bank in the UK) or with specific Credit Unions (like Community Financial Credit Union in Michigan for up to $1,000 balance). For kids, some accounts like WECU offer 7% on small balances, while some high-yield checking accounts or accounts in other countries (like India's IDFC Bank) might hit 7% with strict conditions or large deposits.
Though 529 plans offer the benefit of tax-free gains, they have some drawbacks. Investment options can be limited, and the fees can be high. While you have some flexibility in using unneeded funds, you risk a penalty on non-educational withdrawals.
Five Smart Ways to Plan for your Grandchildren's Financial Future
The five key mistakes to avoid in a TFSA are over-contributing (and re-depositing withdrawals in the same year), treating it like a basic savings account (missing out on investment growth), failing to track your room (relying solely on CRA data), improperly moving funds (withdrawing and redepositing instead of transferring), and investing in non-qualified assets or high-risk trades (like day trading or certain foreign stocks that incur withholding tax).
Grandparents savings – what we'd go for
Kent Reliance pays 4.18% and grandparents can open the account on behalf of a grandchild. Once the child turns seven you'll have the option to grant them access to the account, however you can choose to wait until they are 18 if you prefer. The top online accounts pay less.
A popular way for grandparents to support their grandchildren with tax-free gifts is by paying for or contributing towards certain expenses, whether that's rent, tuition fees, or music lessons. Alternatively, to gift a lump sum to a child under the age of 18, junior ISAs can be a great tax-free option.
Greater Bank is one example of a provider that allows grandparents to open an account on behalf of their grandchildren, with its Life Saver account. The bank says that this account can help children start good habits early, and see the rewards of savings as their balance grows each month with interest.
The best way to invest $1000 for a child depends on your goal, with a Custodial Brokerage Account (UGMA/UTMA) offering the most flexibility for general uses (car, home) and a 529 Plan ideal for tax-advantaged college savings, while a Roth IRA for Kids suits earning children for long-term growth, all leveraging long-term growth potential through ETFs or index funds, with the new "Trump Account" being a specific, limited-time option for younger kids.