Providing for your Grandchildren Through Estate Planning
Grandparents have a special relationship with their grandchildren. Further, whether this type of relationship is because of the 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
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.
While grandparents can use a number of financial tools to provide for their grandchildren, there are certain issues grandparents must consider when passing large amounts of money down to their children. This article looks to address both what financial tools grandparents can use to help their children as well as a few tips to avoid common problems grandparents face when looking to provide for their grandchildren through estate planning.
What Financial Tools can Grandparents Use to Address these Concerns
- Gifting: Grandparents can give each of their grandchildren up to $14,000 per year tax-free by taking advantage of the annual exclusions under the Federal Gift Tax law. Further, there is unlimited gifting available for education and health care expenses, as long as payments are made directly to the college or medical institution.
- Specific bequests in a will or trust: A will or trust can allow you to give each grandchild a specific 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 that 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.
5 Common Estate Planning Problems
One of the best parts about building wealth throughout your life is getting to pass down this financial stability to your grandchildren. However, this desire can turn into a weakness if the grandparent does not set sufficient guidelines. Below are the five most common estate planning problems that can occur when wealth passes from a grandparent to a grandchild, and how to avoid these issues.
No Age Stipulation
When including your grandchildren in your will, it is vital to state how old they must be before they can inherit assets. For example, if you are giving one of your grandchildren $100,000, yet you pass away when this child is only 15 years old, they are much more likely to spend this money frivolously. However, if you provide an age stipulation that the child must wait till they are 18 to receive any money, it is more likely that they will save this money and spend it wisely.
Too Much, Too Soon
Some people choose to give out large chunks of money every few years. This helps avoid having a grandchild spend the money frivolously only to end up with little assets in a few years. Using the example above, a child may receive $25,000 when they turn 18, 22, 26, and the final payout when they turn 30. Using this strategy, you are effectively giving the child money before they go to college, after they graduate college, and during a time in their life when they may want to purchase a home or start a business.
Not Stating how your Grandchild Should use the Assets
Some people may trust their grandchildren to choose how they spend the assets they inherit. However, if you have specific ways you would your grandchildren to spend the money they inherit, you should clearly state this in your will. In most cases, grandparents state that they would like money grandchildren to receive to pay for college, buy a home, start a business, or for something completely different. Whatever your goals for your grandchildren are, you should clearly state these in your will.
This relates to the previous point in that if you do not clearly state what you would like done with the assets you pass on, it is likely to not happen. Further, inheriting a large amount of money early in life can make people disregard common advice. Another reason why it is important to clearly state your wishes is that if you use ambiguous language in your will, greedy relatives may try to take a portion of the assets that is not meant for them.
Touching your Retirement
Many grandparents make the mistake of taking money out of their retirement funds to help out a grandchild with a large expense. However, trying to get this money back, let alone in a timely manner, is typically impossible. Thus, if you are planning on dipping into your retirement savings to help your grandchildren, make sure you will not need these funds at a later point in time.
Trust and estate laws are complex. This is so no matter the type of trust you decide to establish. As such, it is extremely important to have legal representation that can help you correctly set up your trust. The Antonoplos & Associates trust and estate lawyers have over 20 years of experience helping clients in DC, Maryland, and Virginia create a variety of trusts. With this knowledge and experience, we can help with any legal issues that occur from setting up your trust.
Furthermore, Peter Antonoplos, founder and managing partner of Antonoplos & Associates has an LLM in Taxation from Georgetown University Law Center. With this knowledge, Peter can help you decide what is the best type of trust for you and your family and maximize the cost savings you receive from setting up a trust in DC, Maryland, and Virginia.
Contact Our DC Law Office for More Information
Finally, for more on providing for your grandchildren through estate planning, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding estate planning, check out our blog.