Updated: 23 hours ago
Introduction
You want to give money to your children or grandchildren. The natural question is: Is there a better way to do it than simply writing a check? For modest gifts, the answer is often no. A check is simple, effective, and usually sufficient when only a few thousand dollars are involved.
As the amount grows, however, the decision becomes more consequential. A larger gift raises questions that a check alone cannot answer:
How will the money be controlled and used?
Who will be responsible for managing it?
When will the recipient gain access?
What tax consequences could the gift create for you or the recipient?
Could the gift support a broader goal, such as education, financial responsibility, or long-term family wealth?
Without thoughtful structure, a well-intentioned gift can create unintended results. The recipient may gain access to the money before they are ready, the assets may be taxed differently than expected, or the gift may fail to accomplish what you hoped it would.
Gifting to the next generation involves two separate decisions.
The first is structural: choosing the vehicle that will carry the money. That choice can influence who controls the assets, how growth is taxed, when the recipient can access the funds, and how the money may affect your broader financial plan.
The second is personal: deciding how much to give and what you want the gift to accomplish. No account, trust, or investment strategy can answer that question for you. It requires an honest conversation about your values, your family, and the recipient’s maturity and circumstances.
This paper examines the gifting vehicles and strategies available in 2026, along with the key trade-offs of each approach. Just as importantly, it explores the question no financial tool can answer:
How much should you give, and what do you want your gift to make possible?
1. Why This Matters
For most of the last decade, gifting to children and grandchildren ran on a countdown. The estate tax exemption was scheduled to fall, and the goal was to move assets and their future growth out of a taxable estate before the window closed.
The One Big Beautiful Bill Act of 2025 set the federal estate, gift, and generation-skipping transfer tax exemption at $15 million per person, $30 million for a married couple, and made it permanent with inflation indexing (1). The annual gift tax exclusion is $19,000 per recipient for 2026 (1). The overwhelming majority of families will owe no federal estate tax at all.
That changes the point of gifting. When estate tax is off the table, the reason to give during your life is no longer to shrink an estate. It is to fund a goal efficiently, to put money where it grows tax-free instead of taxed, and to do it in a structure that matches how much control you want to keep. As our companion paper on upstream gifting argued, the modern transfer decision is a basis and income tax decision first, and an estate tax decision second. Downstream gifting follows the same logic in the other direction.
Three questions separate the vehicles from one another. Does the gift give the child a present right to the money, or a future one? Do you keep control, or does the child? Is the growth taxed as it happens, taxed later, or never? Hold those three in mind and the choices below sort themselves out.
2. The Building Blocks: Outright Gifts & Direct Payments
Before any account or trust, two tools cover a large share of what most families actually want to do.
The annual exclusion gift
You can give $19,000 per recipient in 2026 with no gift tax, no Form 709, and no reduction of your lifetime exemption (1). A married couple electing to split gifts can give $38,000 to the same person. The number resets every January 1, and there is no limit on how many recipients you choose. Two grandparents giving to three grandchildren can move $114,000 out of their estate in a single year, every year, without touching a form.
Direct payment of tuition and medical expenses
Under Section 2503(e), amounts you pay directly to a school for tuition, or directly to a provider for medical care, are not gifts at all, in any amount, and they do not count against your $19,000 annual exclusion (2). A grandparent can pay a grandchild's full college tuition and still give that same grandchild $19,000 in cash the same year. The check must go to the institution, not to the child or parent as a reimbursement or the exclusion is gone.
These two tools are the foundation. The accounts and trusts below exist for what they cannot do: build a pool that grows over time or attach conditions to how and when the money is used.
3. Accounts That Grow for a Child
A brokerage account with the child as beneficiary
For families who want to build a pool of money for a child or grandchild while keeping full control, a taxable brokerage account in your own name, with the child named as the beneficiary, is often the cleanest structure. You own it, you manage it, you can change your mind, and the account passes to the child at your death with a step-up in basis under Section 1014, erasing the embedded gain (10).
Understand that this is not a completed gift. It does not use your annual exclusion, and it does not remove the asset or its growth from your estate. The child receives nothing until you die, unless you separately gift from it along the way. For a family under the $15 million exemption, that is usually the point: you keep control and capture the step-up, which is the better outcome when estate tax is not a concern. For a family that is over the exemption and needs to move assets and growth out of the estate now, this structure does not do that job, and a completed gift or a trust is the right tool instead.
This is the structure we generally favor over a custodial UTMA account. A custodial account is an irrevocable, completed gift the moment you fund it. Control passes to the child automatically at the age of majority, which is 18 or 21 depending on the state, whether or not the child is ready for it. Because it is a completed lifetime gift, it carries your basis rather than receiving a step-up. Its income is also exposed to the kiddie tax (7). The brokerage with beneficiary approach avoids all four of those problems.
529 education savings plans
For education specifically, the 529 is often the strongest dedicated tool. You contribute after-tax dollars, the account grows tax-free, and withdrawals for qualified education expenses are tax-free (3). You remain the owner, you control the account, and you can change the beneficiary to another family member if plans change.
OBBBA expanded what a 529 can do. Starting with the 2026 tax year, the annual limit for K-12 tuition and expenses doubled from $10,000 to $20,000 per student, and qualified K-12 costs now reach beyond tuition to books, tutoring by a qualified provider, testing fees, and educational therapies (3). Qualified higher-education expenses now include recognized postsecondary credentialing programs: trade certifications, apprenticeships, and professional licensing, not only traditional degrees (3). If a child does not need all the funds, up to $35,000 can be rolled into that beneficiary's Roth IRA over their lifetime, subject to a 15-year account seasoning rule and the annual Roth contribution limits (4). Many states also offer a state income tax deduction or credit for contributions.
Two caveats when considering funding a 529. First, funding the entire projected cost of college is not the goal for every family. A child may earn scholarships, choose a path that does not run through a four-year degree, or attend a school far cheaper than the projections assume, and the long-run trajectory of college costs is hard to predict. A common approach is to fund a portion of expected costs, perhaps half, and cover the rest from cash flow, aid, or borrowing as the picture clarifies. The $35,000 Roth rollover softens the overfunding problem but does not erase it. Second, the super funding move below fits best once a child is old enough that their path is clearer, rather than in infancy when the need is a guess.
A contribution to a 529 counts as a present-interest gift eligible for the annual exclusion, which enables the super funding strategy in Section 5.
Trump accounts
This section reflects the guidance available on September 15, 2026: IRS Notice 2025-68 and the proposed regulations that followed it. Those regulations are not yet final, and details may change.
Created by OBBBA under new Section 530A, a Trump account is a tax-advantaged account for a U.S. child under 18 with a Social Security number (5). Contributions can begin July 4, 2026. Anyone can contribute, up to a combined $5,000 per child per year for 2026 and 2027 (indexed after that), and children born between 2025 and 2028 receive a one-time $1,000 federal seed contribution that does not count against the $5,000 (5). Funds must be invested in low-fee index funds tracking primarily U.S. companies. Withdrawals are permitted starting the year the child turns 18.
The most important thing about a Trump account is what it is: a traditional IRA for a child. It is tax-deferred, not tax-free. Contributions are made with after-tax dollars, the account grows without current tax, and withdrawals of earnings and the seed money are taxed as ordinary income, with a possible penalty before age 59½ (5). Anyone who assumes it works like a Roth or a 529 has the central feature backward. Its value comes from the long runway and a conversion move available once the child is grown, covered in Section 7.
Custodial Roth IRA for a working child
If a child or grandchild has earned income from a summer job, a part-time role, or legitimate work in a family business, they can fund a Roth IRA up to the lesser of their earnings or the annual limit (6). An adult holds it as custodian until the child reaches majority. The contributions grow tax-free, and because time is the most valuable ingredient in compounding, a Roth funded at 16 can outgrow almost any account opened later. It also rewards the thing you may most want to encourage: the child had to earn the money first. You can even match their earnings dollar for dollar as a gift, so the paycheck goes into their pocket and your gift goes into the Roth.
The table below summarizes the accounts and how they differ on the three questions that matter.
Vehicle | Control during life | Tax treatment of growth | Step-up at death | Best suited for |
Brokerage w/ beneficiary | You keep full control | Taxable to you | Yes | A controlled pool that passes at death |
529 plan | You, as owner | Tax-free for education | Not applicable | Education, K-12 through credentialing |
Trump account | Custodial until 18 | Tax-deferred | Not applicable | A long-horizon retirement seed |
Custodial Roth IRA | Custodial until majority | Tax-free | Not applicable | A working child's first retirement account |
4. Trusts for Minors
When you want to make a completed gift that removes assets from your estate but you are not comfortable handing a young person outright control, a trust bridges the gap.
The main caveat is cost. Setting up and maintaining a trust may not be worthwhile for smaller gifts, even if a trust makes sense for a large or ongoing gifting program. For a modest one-time gift, the expense of creating the trust could consume much of its potential benefit. There is no universal dollar threshold because the answer depends on the type of trust, the complexity of your goals, and the circumstances of your family. Before moving forward, ask an estate-planning attorney what size and type of gift would justify the cost. For gifts below that level, the accounts discussed in Section 3 will usually provide a simpler and more practical solution.
Two trusts are built for gifting to minors. Both are attorney-drafted, and the mechanics below are the concept, not a substitute for counsel.
The 2503(c) minor's trust
A gift to a trust is normally a future interest, which does not qualify for the annual exclusion. Section 2503(c) creates an exception: if the trust meets its requirements, including that the assets and income may be used for the child before 21 and pass to the child at 21, your contribution qualifies for the $19,000 annual exclusion even though the child cannot touch it now (8). It lets you make exclusion-eligible gifts while keeping the money under trustee management through the child's early adulthood, past the 18-or-21 cliff a custodial account forces.
The Crummey trust
The more flexible and more common structure. A Crummey trust gives the beneficiary a brief, temporary right to withdraw each contribution, typically 30 days. That withdrawal right is what converts an otherwise future-interest gift into a present-interest gift eligible for the annual exclusion (9). In practice the beneficiary is expected not to exercise it, and the funds remain in trust under whatever terms you set: staggered distributions, milestones, lifetime asset protection, etc. For ongoing annual gifts into a trust that can hold assets well beyond age 21, the Crummey structure is a great tool. For gifts to grandchildren, it can also be layered with generation-skipping planning, noted in the next section. Our trusts paper covers the broader trust landscape.
5. Strategies and the Math
Stack the annual exclusion across givers and recipients.
The exclusion is per giver, per recipient. Two spouses, giving to four children and their spouses, cover eight recipients at $38,000 each: $304,000 moved in one year, with no gift tax and no return. Repeat annually.
Superfund a 529.
The tax code lets you front-load five years of annual-exclusion gifts into a 529 in a single year (3), using a Form 709 election (11). In 2026, that is $95,000 from one person or $190,000 from a couple into a single child's 529 at once, with no gift tax, as long as you make no other exclusion gifts to that child for five years and file the election. The advantage is time in the market: five years of contributions compounding from day one instead of trickling in. Because a large front-load commits money to education before you know whether the child will need it, super funding fits best once the child is older and their path is clearer.
Layer direct payments on top.
In one year, a grandparent can pay a grandchild's $40,000 tuition directly to the school, contribute $19,000 to that grandchild's 529, and give the child's parent another $19,000 in cash. That moves $78,000 with no gift tax, because the tuition is unlimited and the two $19,000 gifts go to different recipients.
Mind the generation-skipping tax for grandchildren.
Gifts to grandchildren can trigger the generation-skipping transfer tax, a second layer on top of the gift tax designed to catch transfers that skip a generation. The GST exemption is also $15 million per person for 2026, so it rarely applies for most families, but larger or trust-based gifts to grandchildren should allocate GST exemption deliberately (1). This is one to coordinate with your advisor.
6. How Much Is Too Much: The Family Conversation
Every tool discussed above can help determine how to give. None can determine how much to give, and that is often the more important question.
Give too little, and you may withhold support that could meaningfully improve a child’s or grandchild’s opportunities. Give too much, too soon, or without the right context, and the gift may unintentionally fund a lifestyle rather than support a specific goal. It could also reduce the recipient’s motivation to develop the judgment, skills, and work ethic that created the family’s wealth.
This is not an argument against gifting. It is an argument for making gifts thoughtfully, with a clear purpose and an honest understanding of the message the money may communicate.
The right number is specific to your family, your values, and the particular child. A few considerations that tend to surface the real answer:
Stagger access by age or milestone rather than delivering a lump sum. Many trusts distribute in thirds, at 25, 30, and 35, so a young adult grows into the responsibility.
Tie gifts to effort. Matching a child's earned income into a Roth, or matching what they save toward a first home, rewards the behavior you want rather than replacing it.
Be candid about what the money is for. A gift earmarked for education, a business, or a down payment carries a message a blank check does not.
Talk about it while you are alive. A family that has discussed money openly handles an inheritance far better than one that meets the numbers for the first time in a lawyer's office.
The vehicles are the easy part. This is the conversation worth having first.
7. Best Practices
Fund tax-free and tax-deferred growth before taxable.
In our opinion, for education, a 529 beats a taxable account. For a working child, a Roth beats almost anything. Match the vehicle's tax treatment to the goal's time horizon.
Use the unlimited exclusions fully.
Pay tuition and medical costs directly, every time. It is the cheapest transfer in the code and the most frequently missed.
Keep control where control matters.
For a general pool you are not ready to hand over, a brokerage account with a beneficiary keeps you in charge and delivers a step-up. Reserve completed gifts and trusts for when the goal calls for them.
Convert a Trump account to a Roth in the child's low-income years.
Once the child turns 18, the Trump account becomes a normal traditional IRA that can be converted to a Roth (5). Done in a year when the young adult is in a low bracket, a student or in an early job, the conversion tax is small and every dollar afterward grows tax-free. One guardrail: the kiddie tax can reach a dependent's unearned income through age 23, and a conversion is unearned income, so the low-bracket assumption only holds once the child is independent or the conversion stays under the kiddie-tax threshold (7). Sketch a multi-year conversion plan rather than converting all at once. Our Roth conversion paper lays out the framework.
Start with the simplest tool that does the job.
The basic methods, an annual-exclusion check, a direct tuition payment, a 529 for a child likely to need it, satisfy the real goal in most cases. Structure is a means, not a badge. A larger gift does not automatically require a fancier vehicle, and complexity you do not need adds cost and administration and nothing else. Reach for a trust or an advanced structure when the goal calls for it, not because a plain gift feels too plain.
8. Common Mistakes and Misconceptions
Treating a Trump account like a Roth.
It is a traditional IRA. Growth is taxed as ordinary income on withdrawal (5). The value comes from the long runway and a later Roth conversion, not from tax-free withdrawals it does not offer.
Handing a custodial account to an 18-year-old.
An UTMA transfers control automatically at the age of majority. Families are routinely surprised when a college freshman gains outright access to a six-figure account (7).
Missing the direct-payment exclusion.
Reimbursing a child for tuition instead of paying the school directly turns an unlimited exclusion into a taxable gift (2).
Forgetting that a Trump account is the child's asset for financial aid.
Because it is owned by the child, it can weigh against them in the aid formula, unlike a parent-owned 529 (5).
Superfunding a 529 without filing the election.
The five-year front-load only works if you file the Form 709 election. Skip it and you have made a taxable gift (3).
Conclusion
The right gifting strategy begins with purpose. Decide what you want the money to accomplish, how much control you want to retain, when the recipient should have access, and what tax considerations may apply. Once those questions are clear, choose the simplest vehicle that supports your goals.
For some families, that may mean a modest cash gift. For others, it may involve tuition paid directly to a school, a 529 plan, or a trust designed to provide greater control over timing and use. More elaborate structures are not automatically better. They make sense only when the family’s objectives and the size of the gift justify the additional cost and complexity.
The most important decision, however, comes before choosing an account or drafting a trust: How much is right for your family to give? No financial vehicle can answer that question. The answer should reflect your resources, your values, the recipient’s circumstances, and the future you want the gift to help create.
Sources
IRS, Revenue Procedure 2025-32, 2026 inflation adjustments (annual exclusion, lifetime and GST exemption). https://www.irs.gov/irb/2025-32_IRB
Internal Revenue Code Section 2503(e), Exclusion for tuition and medical payments. https://www.law.cornell.edu/uscode/text/26/2503
Internal Revenue Code Section 529 and the OBBBA 529 provisions. https://www.law.cornell.edu/uscode/text/26/529
SECURE 2.0 Act, 529-to-Roth rollover provision. https://www.irs.gov/retirement-plans
IRS Notice 2025-68, initial guidance on Trump accounts under IRC Section 530A (December 2025), followed by proposed regulations not yet final. https://www.irs.gov/pub/irs-drop/n-25-68.pdf
IRS, Roth IRAs. https://www.irs.gov/retirement-plans/roth-iras
Internal Revenue Code Section 1(g), Tax on unearned income of certain minor children (kiddie tax). https://www.law.cornell.edu/uscode/text/26/1
Internal Revenue Code Section 2503(c), Transfers for the benefit of minors. https://www.law.cornell.edu/uscode/text/26/2503
Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968).
Internal Revenue Code Section 1014, Basis of property acquired from a decedent. https://www.law.cornell.edu/uscode/text/26/1014
IRS, Frequently Asked Questions on Gift Taxes and Form 709. https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
Important Disclosures
Opinions expressed are subject to change at any time, are not guaranteed and should not be considered investment advice. The statements contained herein are based upon the opinions of Avail Investment Partners at the time of publication and are subject to change at any time without notice. This communication does not constitute investment, tax or legal advice and is for illustrative and informational purposes only and is not intended to meet the objectives or suitability requirements of any specific individual or account and does not provide a guarantee that the investment objective of any model will be met. Always consult a qualified financial, tax, or legal professional regarding your individual circumstances.
.png)