Decisions about when to give, what to give, and who gives are all shaped by tax rules that operate in the background.

Families focused on long-term wealth transfer often begin with education savings and custodial accounts. Tools like 529 college savings plans and Uniform Transfers to Minors Act (UTMA) accounts are familiar, easy to implement, and emotionally rewarding.

What is often overlooked is how these tools interact when multiple family members give to the same child over time. Without coordination, well-intended gifts can quietly reduce tax flexibility, shift control earlier than intended, or limit future estate planning options.

A structured gifting approach helps families support the next generation while remaining mindful of taxes, control, and long-term goals.

Key Takeaways

Gifting strategies should be coordinated across parents and grandparents
529 plans and UTMA accounts serve different planning purposes
The type of asset gifted can matter as much as the amount
State taxes and periodic reviews help keep gifting aligned over time

Understanding Annual Gifting Rules

Each individual may give up to the annual exclusion amount to a beneficiary each year without filing a gift tax return. For 2026, that amount is expected to be $19,000 per donor, or $38,000 for married couples who coordinate gifts.

When parents and grandparents give to the same child, each donor has a separate limit. However, gifts from a single donor across multiple vehicles still aggregate.

For example, contributing to both a 529 plan and a UTMA account for the same child in the same year may push a donor over the annual exclusion. When that happens, Internal Revenue Service (IRS) Form 709 is required, and a portion of the lifetime estate and gift tax exemption is used.

While this does not automatically create a tax bill, it reduces future planning capacity. Tracking who gives, how much, and through which accounts is essential.

How Grandparents Can Support Education With Flexibility

Grandparents often want to contribute meaningfully without disrupting a parent’s broader plan.

A grandparent-owned 529 plan allows education funding while keeping assets outside the child’s name. The account owner retains control over investments and beneficiary changes, and qualified education withdrawals are generally tax-free.

This structure supports education goals while preserving flexibility if plans change or if funds are ultimately redirected within the family.

Why Combining 529 Plans and UTMA Accounts Requires Caution

Although 529 plans and UTMA accounts are often grouped together, they operate very differently.

A UTMA account is an irrevocable gift that becomes the child’s property at the age of majority. Investment income above modest thresholds may be subject to the kiddie tax, which applies the parent’s tax rate to part of the child’s income.

A 529 plan, by contrast, allows tax-free growth when used for qualified education expenses and does not automatically transfer control to the child.

Using both for the same beneficiary can create mismatches between tax treatment, control, and long-term intent. In many cases, families benefit from clearly defining which goal each account is meant to serve rather than layering both by default.

2 Powerful Tax Considerations For Gifting

Step-Up in Basis Should Influence What You Gift
Assets gifted during life generally carry over their original cost basis. Assets held until death may receive a step-up in basis, which can reduce or eliminate capital gains taxes for heirs.

This distinction matters when deciding how to fund education or annual gifts. Cash or low-basis-neutral assets can be ideal for gifting, while highly appreciated assets may warrant a different role in the overall plan.

State Taxes Can Quietly Affect Gifting Outcomes
Some states offer deductions or credits for 529 contributions. Others impose estate or inheritance taxes at lower thresholds than federal law. Families with donors, beneficiaries, or property across multiple states may experience different outcomes depending on account ownership and funding decisions.

Coordinating gifting strategies with state-level rules helps avoid surprises.

Periodic Reviews Keep Gifting Aligned Over Time

Once gifting patterns are established, they can run on autopilot. Tax laws, exemption amounts, and family circumstances change. Regular reviews help confirm that 529 funding, custodial accounts, and donor coordination still support broader estate and tax goals.

In multigenerational planning, small adjustments made early often preserve more flexibility than large corrections later.

Gifting works best when it is intentional, coordinated, and revisited over time. By aligning donors, account structures, asset types, and tax considerations, families can support the next generation while keeping long-term planning options open.

Tax Concerns for Generational Gifting