How Estate Planning helps Grandparents Provide for their Grandchildren
Grandparents have a special relationship with their grandchildren. Whether this viewpoint stems from a difference in age or already raising their own children, grandparents view their grandchildren from a unique perspective. Because of this perspective, grandparents are typically concerned about the following issues.
- Pocket Money
- Problem grandchildren
- Grandchildren who need incentives
What Financial Tools can Grandparents Use to Address these Concerns
There are a number of financial estate planning tools grandparents can use to address their potential concerns. Further, these financial tools often allow grandparents to satisfy multiple goals at one time.
- Gifting: Grandparents can give each of their grandchildren up to $14,000 per year tax-free by taking advantage of the annual exclusions under Federal Gift Tax law. Further, there is unlimited gifting available for education and health care expenses, as long these payments are made directly to the college or medical institution.
- Specific bequests in a will or trust: A will or trust allows you to give each grandchild a specified amount of assets. These estate planning tools allow for a lot of variabilities such as if there is a surviving grandparent, the assets can be held until that person passes away. Additionally, wills and trusts are good tools to use when providing for unmotivated grandchildren, those with mental illnesses, or addiction problems.
- Percentage share of the estate: Grandparents can also provide that a grandchild will receive a certain percentage of the total estate value. If a grandchild is at least 18 years old, a child can directly inherit the assets or monies from the sale of these assets. However, if the child is under 18, you can enlist someone to act as a trustee. The trustee will look over the assets until the grandchild is ready to take over the account.
- 529 plans: A grandparent can establish or contribute to an already existing 529 plan. This plan is a great way to save for college or other education-related expenses.
- 2503-C trusts: This type of trust can be established by a grandparent who has a grandchild that is under the age of 21.