Estate Planning Strategies for Grandchildren’s Needs
Provided by HG.org
Many individuals want to provide an inheritance to grandchildren. There may be a variety of situations in which grandchildren’s situations are considered in order to provide an effective estate plan. There are many strategies to provide for grandchildren, depending on the circumstances.
Grandchildren as Dependents
Many grandparents actively raise their grandchildren. Their own children may be deceased, may be incarcerated or may otherwise not fulfill the primary parental role. Grandparents in these situations want to be able to protect their grandchildren just as they would have protected their own children under the same circumstances.
There are several estate planning tools that grandparents can use if they are in this situation. They may use a will to name a guardian for the care of their grandchildren if they pass away while the grandchildren are still minors. They may also sign HIPAA release forms for their grandchildren in which they agree to have their grandchildren’s medical records and information released to someone else in case of an emergency or if the grandparent cannot act for the grandchild for some reason. Grandparents may wish to purchase life insurance to provide for the financial needs of their grandchild if they pass away while the children are still dependent on them.
Gifting to Minors
Minors cannot directly receive assets in their own name. If a minor is given an inheritance and no other estate plan is in place, a guardian may be appointed to manage the assets for the benefit of the child. However, the costs of administration and these court proceedings are often expensive, which is why many grandparents may consider alternatives.
If a gift to a minor is valued at less than $50,000, a Child Uniform Transfer to Minors Act account may be opened and managed by a trusted adult. Another option is to establish a 529 Plan if the funds are intended to provide for the educational needs of the child.
In some situations, grandchildren may be named as backup beneficiaries when their parents are unable to inherit because they predeceased the grandparent. Grandchildren may be listed as contingent beneficiaries on life insurance accounts, wills or trusts.
A common way to provide for the financial needs of children is to create a trust. There are several advantages to a trust. A grandparent can direct the distributions of funds to a grandchild based on his or her needs and age. For example, the grandparent can state that the funds should be used for educational purposes or to pay medical expenses. It may also restrict distributions until the child reaches a certain age, such as 30. A trust can manage more valuable property, such as real property. It can also be used to manage assets for more than one grandchild, which helps to reduce the total administration costs. The trust can remain in place for as long as the grantor wants.
A trust allows the grantor to convey his or her desires about how trust funds are used, but the trustee has discretion to be flexible with unanticipated circumstances. Trusts can contain specific provisions that are designed to protect beneficiaries, such as spendthrift provisions that withhold distributions if a creditor is trying to get access to them. They can also withhold distributions if a beneficiary has substance abuse problems or other issues exist. Trusts allow for the grantor to have more control of the assets, even after their death.
Generation-skipping trusts are used to avoid generation-skipping tax by allowing trust assets to be distributed to beneficiaries who are two or more generations younger than the grantor. Special needs trusts include specific provisions to allow a beneficiary to continue receiving public benefits such as SSI or Medicaid while benefitting also from the trust funds.
Contact an Experienced Estate Planning Lawyer
If you would like advice personalized on your specific situation, contact an experienced estate planning lawyer. A solid estate plan can help ensure that your grandchildren have the care and oversight necessary to help them after your passing. Trusts, wills and other estate planning tools can help provide the assistance that grandchildren need.
An estate planning lawyer can review your specific situation and the pieces of your estate plan that are already in place. He or she can then provide individualized attention and assistance to determine missing pieces of this plan. He or she can discuss insurance, power of attorney designations and other estate planning options to ensure that your grandchildren are properly protected for years to come.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.