I admit it: I’m a sucker for a good story, and as luck would have it, this works out pretty well in my career as an estate planner. One of the best parts of my job is that I get to hear the stories of so many incredible families. I love learning about where they came from, how they got here, and where they’d like to go. But of all the great stories I hear, I most enjoy those about my clients’ grandchildren. I learn about their interests, their personalities, and all the many things they want to accomplish in their lives. That’s where the estate planning part comes in. The right estate plan can provide the opportunities that will allow your grandchild to realize those big dreams long after you’ve passed on. This blog will look at a few of the ways you can provide for your grandchildren with your estate.
1. Trust Planning
If your grandchildren are still minors (under age 18), it is best to not leave them money directly. If you name them directly on a beneficiary designation for something like a life insurance policy, they will likely not be able to access that money until they turn 18. An additional concern is that when they do turn 18, they would have full access to all of it at once, (Ferrari, anyone?) By placing your gift to them inside a Trust, you can accomplish several different goals at once. First, the money can be available to meet their needs long before they turn 18, such as for living expenses, private school tuition or just incidental needs as they come up. Second, you can place restrictions on when they will receive the bulk of the money. For instance, you can say that the money must remain in Trust until age 25 or even release it incrementally, such as giving them half of the balance at age 25 and the remainder at age 30. This is often a tool that is used to help them learn from their mistake of blowing all the money the first time around. An important thing to remember is that just because the money remains in trust doesn’t mean it cannot be used for their benefit now, it just means that a Trustee makes the decision rather than the child themselves. That Trustee can be anyone from a trusted family member to a trust officer in a Bank or other Trust company.
2. Outright Gifts
What about that grandchild who is already an adult and acting responsibly? For them, you can consider just making an outright gift in your estate for them. That gift could be something as simple as a cash gift all the way up to leaving them real estate or other more complex assets. If the grandchild you wish to benefit is already established, it may make sense to leave them in charge of assets without the complications of a trust.
3. 529 Qualified Tuition Plans
If Education is your main concern, you may wish to leave money to your grandchildren in the form of a 529 College Saving Plan. This is a plan that your Financial Advisor can help you set up. The money that is placed in a 529 Plan grows tax free if it is used on qualified higher education expenses when the money is withdrawn. Most of these plans allow flexibility such as if the intended beneficiary chooses not to go to college, the funds can be transferred to another family member who will use it.
This is by no means an exhaustive list of ways to provide for your grandchildren. If you are considering making a gift to benefit your grandchild, it is imperative that you sit down with an Estate Planning Attorney to ensure that those gifts help provide peace and prosperity as you intend. Click here to contact our office.