It is not unusual for grandchildren to become a priority when creating an estate plan. From a practical perspective some grandparents decide that the best way to provide for their grandchildren is to leave their assets to the grandchildren’s parents, indirectly benefiting the grandchildren. However, for various reasons, grandparents may find that it makes better sense to give their assets directly to their grandchildren. Those reasons are usually quite personal and could include concern that the grandchildren’s parents would not use the money responsibly. In today’s society, everything about the family unit has become less traditional, and in some cases, there are circumstances when grandparents want to ensure their grandchildren are taken care of financially in the future.
If you are considering this option in your estate planning, work with an attorney from Staack, Simms & Reighard, PLLC to see how we can help protect your family and your financial legacy. With so many different options for giving assets to your grandchildren, you want to be able to make informed choices. Read on as we will give you an overview of some of the most common estate planning strategies, then call us to schedule a consultation so that our attorneys can help you make the best decisions for your unique situation.
Factors that Will Influence Your Estate Planning
The tools we will suggest for you will depend on a number of factors. The age of your grandchildren, the status of your children and your relationship with them, the size of your estate, how you want your inheritance spent, and possible tax consequences will all factor into determining which strategy is best for you.
We urge you to consider the effect on all parties involved and carefully consider just how you want your final wishes for your estate to be carried out. Consider speaking with your grandchildren’s parents beforehand about how you can best support the development of your grandchildren and provide for them. This will ensure that your financial assistance will be appreciated and truly beneficial.
Common Options
Regardless of your current situation, here are some of the options for providing for grandchildren in your estate plan and/or leaving an inheritance directly to them. You will need more details about each strategy, so be sure to give Staack, Simms & Reighard, PLLC a call for counsel.
Specific Bequest in a Will
Grandparents have the option of providing the grandchild with a fixed amount or a percentage share of the estate. Keep in mind, this method has no tax advantages and offers no control over how your grandchildren will use the inheritance.
Incentive trusts
An incentive trust is designed to encourage or discourage certain behaviors by placing restrictions on the trust property. For example, you could require that the trust funds only be used for education, buying a first home, or starting a business. You could also stipulate that trust funds are held back if your grandchild develops a substance abuse problem, refuses to get a job, or is in trouble with creditors. Through a trust, you can also control at what age your grandchildren receive the inheritance. Another option to consider is to have the trust funds doled out in set amounts over a long period of time, such as every five years.
2503-C trust
A 2503-C trust is created to benefit a child under the age of 21. It is a unique option because it allows grandparents to take advantage of the gift tax exclusion while maintaining control over the property until the child reaches the age of majority. The minor must receive the property at age 21. If the child dies before age 21, the trust property is paid to the child’s estate.
Dynasty Trust
A dynasty trust is a long-term trust designed to pass wealth from generation to generation, without incurring gift tax, estate tax, or generation-skipping transfer tax. You must pay income tax on income generated by trust assets, so many individuals fund the trust with non-income producing assets, such as life insurance policies or tax-free municipal bonds.
Lifetime Giving
A grandparent can gift up to $15,000 a year without triggering the federal gift tax. Lifetime giving removes the property from your estate, lowering your estate’s tax liability after your death. Lifetime gifts for education expenses and medical care are exempt from gift tax regardless of the amount, as long as the payment is made directly to the educational institution or medical provider. In addition to the tax benefits, giving while you are alive allows you to see your grandchildren receiving your gift. When deciding whether to make a lifetime gift, it is critical to make sure that your own current and future needs are taken care of first.
529 Plan
Contributing to a 529 plan allows a grandparent to provide for their grandchildren’s future educational needs such as tuition, fees, books, supplies, room, and board. Funds in a 529 plan are not considered part of your estate and can reduce estate tax exposure. Beneficiaries of a 529 plan can be changed at any time, allowing a grandparent the flexibility to meet the unique educational needs of all their current and future grandchildren.
Uniform Transfer to Minors Account
A uniform transfer to minors account (UTMA), sometimes referred to as a custodial account, is another way for grandparents to pass money down to their grandchildren. Transfers into UTMA accounts qualify for the gift tax exclusion, and money is put into the account on an after-tax basis. The assets in the account must be paid to the child once they reach the age of majority and the grandparent cannot restrict how these funds are spent.
Where Do I Begin?
Each of these options have specific benefits and restrictions, that we, as qualified lawyers and financial experts, will be happy to discuss with you. For peace of mind and informed financial and legal decision making with regard to providing for your grandchildren, contact Staack, Simms & Reighard, PLLC today. We will be there to make sure your estate planning needs are met today, and we will be there for you for years to come as your needs change and goals evolve.
Get experienced representation for your estate planning. Reach out today.
Staack, Simms & Reighard, PLLC