Part of your legacy planning is considering how to leave assets to your grandchildren. This can be a very challenging topic and requires careful thought and planning.
Some Key Questions to Consider:
- How to select who gets what? This can be the most challenging part of inheritances, especially to avoid resentment caused by improper planning. For example, leaving a family business might seem like a great long-term investment and income stream to one grandchild, yet a burden and poor liquidity to another.
- How to handle sentimental assets? A will can be an effective instrument to specify assets among grandchildren.
- What about cash vs. real estate vs. IRAs? Liquidity is a consideration for real estate, as well as potential ongoing use of the property by your heirs (i.e., will they keep it as investment, which may mean relatively low near-term income, or sell it and reap the proceeds?). Consider taxation when gifting different assets to specific heirs, as IRA accounts are subject to taxes.
- Are control systems needed? You can set up a trust that distributes your gifts over a period of years or as the grandchild ages (e.g., at ages 20, 25, and 30), or for specific purposes, such as education, wedding or home purchase.
- What age? If you don't create a trust, any funds you leave to your grandchildren are overseen by the child's parents or guardians until they turn 18 or adulthood (per state), then given to the child.
- What about the parents? Be sure to speak with the grandchild's parents. For example, giving large sums of money may actually not be appreciated by the parents, who could feel it hinders a child's character development.
Grandparents who wish to help their grandchildren have several ways to leave assets, with selection depending on your circumstances and the size of your estate. Consult with a lawyer for the proper strategy for any of these methods:
- Will - A will can specify what assets are distributed to which grandchildren. However, a will alone doesn't always provide for a trust's specific financial instructions, probate avoidance, and taxes.
- Trustee appointment - You can appoint a trustee to hold and manage your grandchild's estate portion, aimed at ensuring that funds are used as intended by the grandchild or for the grandchild's benefit.
- Trusts - A trust distributes your assets with more control over use of funds. There are various ways a trust can be set up, including irrevocable trusts and revocable trusts.
- Conservatorships - These should be considered if your grandchild is unable to manage the basic necessities of life (food, clothing, and shelter) without relying heavily on others.
- Custodial accounts - If you'd like to set aside funds now, a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account allows gifting of stocks, bonds, and other securities to grandchildren. However, the grandchild can take possession of these custodial accounts as soon as allowed by state law, and you have no control over use of funds.
- Investment and bank accounts - Transfer of these accounts at your passing are a simple solution for small amounts or if you don't need to divide a complex estate among grandchildren.
- Educational savings accounts - College savings accounts in a grandchild's name allow gifting college-earmarked funds before death that grow as tax-deferred in investments.
- Retirement accounts - If your grandchild has earned income, you may be able to contribute to their Roth IRA.
Experts in Grandparent Estate Planning
The above information just touches the surface of the delicate issue of estate planning for the benefit of your grandchildren. At Mortensen & Reinheimer, PC we have decades of experience helping grandparents with estate planning. Please contact Mortensen & Reinheimer, PC at (714) 384-6053 to make an appointment, or use our online contact form. Our website is http://www.ocestateplanning.net.
About the author:
Tamsen R. Reinheimer, Attorney, is a Certified Specialist in Estate Planning, Trust & Probate Law (The State Bar of California Board of Legal Specialization). She has significant experience in all aspects of estate planning, trust administration, and probate. Contact Tamsen at firstname.lastname@example.org.