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Never Leave Money To Grandkids (Do This Instead) | Repair The Roof Podcast

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In this conversation, Attorney Ted Gudorf discusses the common pitfalls grandparents face when planning to leave money to their grandchildren. He emphasizes the importance of proper estate planning to avoid costly mistakes, such as direct gifting, naming minors as beneficiaries, and adding grandchildren to property deeds. Ted advocates for the use of trusts to protect assets and ensure they are passed on effectively, while also addressing the implications of recent legislative changes affecting retirement accounts. The conversation serves as a guide for grandparents to make informed decisions about their legacy.

Never Leave Money to Grandkids Outright: Do This Instead

A generous inheritance can become a financial problem when it reaches your grandchildren without the right structure.

Leaving money to your grandchildren can be one of the most meaningful parts of your estate plan. You worked hard to build your assets, and naturally, you want those assets to give the next generation more opportunities.

But there is an important distinction between leaving money to your grandchildren and leaving money to your grandchildren outright.

An inheritance delivered without the right protections can potentially become vulnerable to creditors, lawsuits, divorce, poor financial decisions, unnecessary court involvement, or an unexpected tax bill.

Even seemingly simple decisions—writing annual checks, naming a grandchild directly as a beneficiary, or adding a grandchild to the deed of your home—can create consequences you never intended.

Here are four mistakes grandparents should understand before transferring wealth to the next generation.

Mistake #1: Assuming the IRS Gift Limit Protects You From Medicaid Rules

Many grandparents regularly give money to their children and grandchildren.

Perhaps you write a $5,000 check at Christmas. Maybe you contribute $10,000 toward college, a wedding, or a first home.

You may carefully stay within the federal annual gift tax exclusion and assume everything is fine.

From a federal gift-tax perspective, that may be true.

But Medicaid operates under a different set of rules.

For 2026, the federal annual gift tax exclusion is $19,000 per recipient. However, staying below that amount does not automatically mean a transfer is disregarded when determining Medicaid eligibility.

Medicaid generally applies a five-year look-back period to certain transfers when evaluating eligibility for long-term care benefits. Depending on the circumstances and applicable state rules, gifts made during that period may result in a period of ineligibility.

That distinction matters because long-term care can be expensive.

A family that believed its gifting strategy was perfectly acceptable for tax purposes could discover years later that those same gifts complicate Medicaid planning.

The Bigger Issue Isn't the Gift Amount

The real question isn't simply:

"How much am I allowed to give away this year?"

A better question is:

"How does this transfer fit into my overall estate and long-term-care plan?"

Those are two very different conversations.

For some families, advance planning may include an appropriately designed irrevocable trust, sometimes referred to as a Medicaid Asset Protection Trust. Whether such a strategy is appropriate depends on state law, timing, assets, goals, and the amount of control you're willing to give up.

The important point is simple: don't assume federal gift-tax rules and Medicaid eligibility rules work the same way.

They don't.

Before making substantial gifts—particularly if future long-term-care costs are a concern—consider discussing the transfer with a qualified elder law attorney.

Mistake #2: Naming a Minor Grandchild Directly as a Beneficiary

Beneficiary designations look simple.

You have a life insurance policy, bank account, or another financial asset. You want your granddaughter to receive it, so you put her name on the beneficiary form.

Done, right?

Not necessarily.

A minor generally cannot independently control a significant inherited asset. Depending on the asset, amount, beneficiary's age, and applicable state law, additional arrangements or court involvement may be necessary to manage the inheritance.

And eventually, the beneficiary may receive complete control at a relatively young age.

Imagine leaving $180,000 to a grandchild.

You may picture that money helping pay for:

College or professional training
A first home
Starting a business
Medical expenses
Long-term financial security

But your beneficiary designation doesn't necessarily communicate any of those intentions.

If the grandchild ultimately receives the inheritance outright, the money may come with few or no restrictions.

An inheritance intended to create decades of opportunity can potentially disappear surprisingly quickly.

A Trust Can Add the Missing Structure

Instead of naming a minor grandchild directly, grandparents can consider using an appropriately drafted trust.

A trust may allow you to establish rules for how assets are managed and distributed.

For example, the trust might authorize distributions for education, healthcare, housing, or other needs while allowing a trustee to manage the remaining assets.

You can also determine whether your grandchild eventually receives complete control and, depending on the trust design, when that happens.

Age 18 doesn't have to become the automatic finish line simply because that's when a beneficiary legally becomes an adult.

The goal isn't necessarily to prevent your grandchildren from using their inheritance.

It's to give the inheritance enough structure to have a better chance of accomplishing what you intended.

Mistake #3: Treating an Inherited IRA Like It Still Has the Old Rules

Retirement accounts require particularly careful planning.

Before the SECURE Act changed the rules for many inherited retirement accounts, younger beneficiaries could often "stretch" required distributions over their life expectancy.

That potentially allowed decades of tax-deferred growth.

For many non-spouse beneficiaries, that strategy has changed substantially.

Under current federal rules, many non-eligible designated beneficiaries who inherit retirement accounts are generally subject to a 10-year distribution period. The exact distribution requirements within those ten years can depend on the type of account, the original owner's circumstances, and the beneficiary's status.

That can create an important tax-planning issue.

Suppose your grandchild inherits a substantial traditional IRA while they're already earning a strong income.

Taxable distributions from the inherited account could arrive during some of their higher-income years.

Suddenly, an account you spent decades building tax-deferred may create a significant income-tax consideration for your beneficiary.

Retirement Accounts Need Their Own Estate Planning Strategy

A trust designed specifically to receive retirement assets may be worth considering in some situations, particularly when asset protection, beneficiary control, or special family circumstances are important.

But retirement trusts are complex.

The SECURE Act and subsequent regulations impose specific rules, and naming a trust as an IRA beneficiary can create unintended tax consequences if the trust isn't drafted and administered correctly.

That's why your retirement accounts shouldn't simply be treated as another line on your estate planning checklist.

There may also be opportunities to coordinate estate planning with tax planning during your lifetime.

For example, some families evaluate partial Roth conversions during years when their taxable income is lower.

Paying tax today is not automatically better than having your beneficiaries pay it later. Whether a Roth conversion makes sense depends on your tax rate, projected future rates, Medicare considerations, cash flow, investment horizon, estate goals, and the beneficiaries' circumstances.

But when the numbers align, a Roth strategy may change the tax characteristics of the assets eventually inherited by your family.

The larger lesson is this:

Your beneficiary form is part of your estate plan—and it deserves the same level of attention as your will or trust.

Mistake #4: Adding Your Grandchild to the Deed of Your Home

This may be the most deceptively simple strategy of all.

You own a home that has appreciated substantially over the years. You want your grandchild to have it eventually, so you add their name to the deed now.

It feels efficient.

But transferring an interest in appreciated property during your lifetime can have very different tax consequences from transferring that property at death.

Consider a simplified example.

Suppose you purchased a home decades ago for $80,000, and today it's worth $400,000.

If you give the property away during your lifetime, the recipient generally receives your adjusted tax basis, subject to applicable tax rules.

That means a later sale could potentially expose a substantial portion of the appreciation to capital gains tax.

By contrast, property inherited at death generally receives a basis adjustment to fair market value as of the date of death, subject to federal tax rules and individual circumstances.

That difference can be significant.

One Property, Two Very Different Outcomes

Assume the property's adjusted basis is $80,000 and its value has grown to $400,000.

A lifetime gift could leave the recipient with substantial unrealized appreciation.

An inheritance at death may receive a basis adjustment, potentially reducing the taxable capital gain if the property is sold shortly afterward.

Of course, taxes are more complicated than a single calculation. Improvements, depreciation, selling costs, ownership structure, state taxes, exclusions, and other factors can affect the final result.

But the broader planning principle remains important:

Don't transfer appreciated property simply because adding someone to the deed feels easier.

A revocable living trust or another properly designed estate planning strategy may allow you to maintain control during your lifetime while establishing how the property should pass at death.

It can also potentially help avoid probate for properly titled assets.

The Common Thread Behind All Four Mistakes

These situations appear different.

One involves gifting.

Another involves beneficiary forms.

Another involves retirement accounts.

Another involves real estate.

But they share the same underlying problem:

The asset is being transferred without enough structure around the transfer.

That's where thoughtful trust planning can become valuable.

Depending on your circumstances and the type of trust involved, a properly designed plan may help:

Establish when and why beneficiaries receive distributions
Provide varying degrees of creditor or divorce protection
Reduce unnecessary probate involvement for properly funded assets
Coordinate retirement accounts with the rest of your estate
Protect beneficiaries who aren't ready to manage a large inheritance
Preserve flexibility for changing family circumstances

And perhaps most importantly, it can help connect your money to your intentions.

Because your goal probably isn't simply to make sure a grandchild receives a check.

You want that inheritance to help them.

You Can Pass Along More Than Money

Some grandparents take the planning process one step further.

Along with their legal documents, they prepare a personal letter explaining their hopes for the inheritance.

Sometimes called a letter of wishes, this type of communication generally isn't a substitute for legally binding trust provisions. But it can provide context for trustees and family members.

Why did you create the trust?

What opportunities did you hope the money would provide?

What values guided your decisions?

Years from now, those words may be as meaningful to your grandchildren as the assets themselves.

Before You Leave Money to Your Grandchildren, Ask One Question

Estate planning isn't only about deciding who gets what.

It's also about deciding how they receive it.

Direct gifts can look simple today while creating complications years later. Beneficiary designations can override other estate documents. Retirement accounts have specialized tax rules. Real estate transfers can create unexpected consequences.

That's why the best place to start isn't necessarily with a dollar amount or beneficiary form.

It's with the structure of your overall plan.

The Next Decision: Will or Trust?

Once you understand the risks of leaving assets outright, another question immediately follows:

Do you actually need a trust, or is a will enough?

The answer depends on your assets, family circumstances, beneficiary needs, privacy concerns, probate exposure, and long-term goals.

But choosing the wrong structure can undermine even the best intentions.

Watch "Will vs. Trust: Which Do You Need?" next to understand the differences and determine which questions you should be asking about your own estate plan.

Conclusion

Leaving an inheritance to your grandchildren can create opportunities that last far beyond your lifetime—but only if the assets reach them in a way that supports your intentions.

The biggest estate planning mistakes often don't come from a lack of generosity.

They come from generosity without enough planning.

Before writing substantial checks, naming grandchildren directly on beneficiary forms, changing retirement-account beneficiaries, or transferring real estate, consider how that decision fits into your broader estate and long-term-care strategy.

The objective isn't simply to leave your grandchildren more.

It's to give what you leave them a better chance of lasting.

Transcript: Prefer to Read — Click to Open

Ted (00:00.11)

Most people think leaving money to their grandchildren is a generous loving act. Done the wrong way, it does the opposite. An outright inheritance can be lost to a divorce, a lawsuit, a young adult’s bad decisions or taxes, sometimes within a few years after the gift. Today I’ll walk you through the four most common ways this goes wrong, and exactly what to do instead so your grandkids actually keep.

What you leave them. My name is Attorney Ted Gudorf, and for over thirty five years I’ve helped families protect what they’ve spent a lifetime building. The first mistake is the one that causes the most damage, and most grandparents don’t find out about it until they’re already dealing with a nursing home bill. Here’s what happens You write checks to your grandchildren. Maybe five thousand dollars a Christmas, maybe ten thousand when a grandchild starts college.

You stay under the nineteen thousand dollars IRS annual gift limit, so you figure you’re fine. And from a federal tax standpoint you are. But Medicaid plays by a completely different set of rules. If you ever need a nursing home, Medicaid looks back at every dollar you gave away over the last five years. Every check, every bank transfer, every birthday envelope, they call it the look back period.

Right now a nursing home costs somewhere between eight and twelve thousand dollars a month in most parts of the country. Most people can’t pay that out of pocket for long, so they turn to Medicaid. What most people don’t realize is that Medicaid reviews every transfer you made in the five years before you apply. The IRS annual gift limit means nothing to them, not even a little.

If they find transfers during that look back window, they will make you wait before a single day of coverage kicks in. Sometimes months or years, sometimes longer. During that waiting period you are paying the nursing home bill out of pocket. I’ve seen families scramble to come up with ten thousand dollars a month because grandma gave the grandkids money a few years earlier. She stayed under the IRS limit. She thought she was fine and

Ted (02:24.704)

And nobody told her Medicaid has its own rules entirely. The fix is to talk to an elder law attorney before you give anything away and create what is called a Medicaid asset protection trust, where you move assets out of your name early enough to clear the look back period. You need a plan, not just a number you’re trying to stay under. Now you know why direct gifting can work against you.

Now the second mistake is one that catches people who think they’ve already handled everything. Let’s say you fill out a beneficiary form on your life insurance or your bank account, and you write your granddaughter Emma’s name. Feels simple, feels done. But miners cannot legally inherit assets. The moment Emma’s name shows up as a direct beneficiary, a probate court steps in.

The court appoints what’s called a guardian to manage that money until the grandchild turns eighteen. That guardian files annual reports with the court. They charge fees every single year, and they’re required to keep the money in low yield conservative accounts because courts don’t allow risk oftentimes. I had a client who left one hundred eighty thousand dollars to his grandson Tyler through a life insurance beneficiary designation.

He figured Tyler’s parents would manage it for him. They had no legal authority to do that. The court appointed a guardian. Over three years that guardian charged for fees and kept the money sitting in accounts, earning almost nothing. And then on Tyler’s eighteenth birthday, he received about one hundred sixty one thousand dollars with zero restrictions and zero guidance. What did he do?

He bought a car. He took his friends on a trip. He was broke fourteen months later and never enrolled in college. A trust with a distribution at age twenty five would have changed the entire outcome of that story. Do not name a minor grandchild directly on a beneficiary form. Set up a trust instead. You decide what age they can access the funds. Is it age twenty one, twenty five or

Ted (04:52.034)

thirty five, what is the age? You name a trustee you trust. You can build in provisions, whether it be for health or education or basic needs before they hit the distribution age. The money still reaches them, it just reaches them with somebody protecting it. Here’s where most people assume they’re already done things right. They have a will.

They have accounts titled correctly, but the retirement accounts, that’s mistake number three. And it affects almost every family with an IRA. You know, before 2020, naming a grandchild as the beneficiary of your IRA was actually a strong long-term strategy. They could take small distributions stretched over their entire lifetime, decades of tax-deferred growth.

It was one of the most efficient ways to pass retirement money to the next generation. But then Congress passed the Secure Act in twenty nineteen and that strategy was largely wiped out. Now, with very limited exceptions, anyone who inherits your retirement account has to empty the entire account within ten years of your death.

For a grandchild in their thirties or forties, that means forced payouts during their highest earning years. That pushes them into a higher tax bracket than you ever were in. Nobody planned for that. You spent thirty years building that retirement account carefully, and a law change turns it into a tax problem for the person you were trying to help. You should consider naming a properly drafted tax.

Retirement Plan Trust, otherwise called an IRA trust, as the beneficiary of your retirement account with your grandchildren named as beneficiaries of that trust. This gives you control over the timing of distributions and limits the tax hit on the other end. You should also talk to your estate planning attorney about doing partial Roth conversions during your lower income years in retirement before Social Security.

Ted (07:16.736)

And required minimum distributions kick in. You pay tax at your rate now, your grandchildren inherit it tax free later. That is one of the most efficient transfers available right now. Now for the fourth mistake. This one comes from a good place. And that almost makes it worse. You’ve owned your home for decades. You want to keep it in the family, so you add your grandchild’s name to the deed now. Feel simple.

Feels permanent. But that decision can cost your grandchild tens of thousands of dollars in taxes, and every dollar of it is avoidable. When you give someone property while you’re alive, they inherit your cost basis. It is cost basis. Well that’s the original price you paid for the home. Let’s say you bought your house in nineteen eighty five for eighty thousand dollars and today it’s worth four hundred thousand. If you gift it now,

Your grandchild’s cost basis is eighty thousand. When they sell, they owe capital gains tax on the full difference. That’s three hundred twenty thousand dollars in gains at a fifteen to twenty percent rate. That’s forty eight thousand to sixty four thousand dollars of capital gain taxes straight out of their pocket. Your gift came with a large tax bill attached to it.

I had a client named Dorothy who added her grandson Marcus to the deed on her home while she was still alive. She bought the house in nineteen seventy nine for sixty-five thousand, but by the time Marcus sold it, the home was worth over three hundred ninety thousand dollars. His tax bill was over forty eight thousand dollars. Now, if Dorothy had simply left the home to Marcus through her revocable trust,

He would have received a stepped up basis. His cost basis would have reset to the market value at the time of her death. Then if he sold it shortly thereafter, he would have owed nothing in capital gains taxes. One piece of paper, two completely different outcomes. Do not deed your home to a grandchild while you’re alive. Leave it through a revocable living trust instead.

Ted (09:42.102)

You stay in full control while you’re alive. At your death, the home passes to your grandchild automatically. No probate, no court, no tax bill. They get the stepped up basis. If they sell soon after, the tax hit is minimal or zero. All four of these mistakes share one root cause assets transferred with no structure around them. A trust fixes every one of them.

It controls when the money reaches your grandchild, it protects the assets from creditors, lawsuits, and divorces, it avoids probate, which keeps the transfer private and moves it quickly. And it gives you a way to pass on your values, not just your money. Many families pair their trust with a personal letter, a letter of wishes to the trustee describing what they would have wanted it in a tough situation.

It is not a legal document, but it gives the trustee something powerful to say when a grandchild pushes back. Those words can really wait. Setting your grandchildren up financially is one of the most meaningful things you can do. Without a plan, that money doesn’t always end up where you want it to go. With the right plan in place, it does. Now you know the four mistakes that cost grandparents the most money.

And what to do instead. But here’s what most people miss after watching a video like this. They know the mistakes, but they still don’t know where to start. And the first question almost every family gets wrong is this Do you need a trust? Or will a simple will actually handle it? I want you to watch a will versus a trust. Which do you need next? I’ll show you why that decision matters.

More than most people realize.

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