7.4d1 The Law and Tax Policy

Research finds that “wealthy families have a higher than random chance of remaining at a top wealth position in subsequent generations” (Beckert, 2022, p. 237). Beckert argues that wealthy families have wealthy children, in part due to favorable laws and tax policies, specifically those related to inheritance, trusts, financial regulations, and estate taxes. For example, estates up to $12,920,000 (in 2023) are exempt from federal estate taxes (Internal Revenue Service, 2022). However, only 10% of households held wealth valuing $1,410,000 or more in 2020 (Hays & Sullivan, 2022). Therefore, most families will not owe any federal estate taxes.

Grandparents can also pass money on to future generations tax-free through grandparent-owned 529 plans. The assets in grandparent-owned 529 plans are not reported on the Free Application for Federal Student Aid (FAFSA), which could lead to receiving more aid from the government or college. Distributions are tax-free if they are for approved education expenses. Wealthy grandparents can use them to avoid paying gift taxes receive tax breaks on contributions in some U.S. states (Fidelity Viewpoints, 2023). There are many favorable laws and tax policies operating at the macro-level that enable wealthy families to hold onto their wealth.

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Grandparents Can Pass Down Wealth Tax-Free Through 529 Plans