As a grandparent—or maybe soon-to-be grandparent—one of the great joys of life is reading stories to your grandchildren. Every grandparent-grandchild combo has their favorite. Maybe it’s a lively retelling of the classic Where the Wild Things Are or The Tale of Peter Rabbit. Maybe it’s the more contemporary—but no less classic—Dragons Love Tacos. Or it could be a regional favorite like Blueberries for Sal, transporting you to springtime in Maine. The funnest part? The voices.
It’s fair to say, though, you haven’t spent much time reading aloud from Estate Planning for the Modern Family: A Georgian’s Guide to Wills, Trusts, and Powers of Attorney to your heirs. (Let’s be honest—it’s hard to do voices with that one!)
But here’s the thing: even though you may not want to drag estate planning into storytime for your grandchildren, it’s essential that you account for them. After all, estate planning isn’t just for your children. It should be for your grandchildren—and great-grandchildren and beyond.
That’s because when you plan your estate with your grandchildren in mind, you’re taking the steps to ensure that your assets are distributed according to your wishes and that your family will be provided for in the way that you desire. By including your grandchildren in your estate plan, you can help provide for their education, support family members with special needs, help establish financial security for their future, and more.
Keep reading to gain some helpful information on estate planning for your grandchildren.
Important factors to consider
Some individuals may find it more straightforward to designate their adult children as beneficiaries who can then distribute accounts and property to the grandchildren. But there are many cases where one might prefer to give assets directly to the grandchildren—whether there are complicated or challenging family relationships, for example, or they simply want to include the grandchildren in the will as a meaningful gesture.
Types of assets you can leave to your grandchildren include:
- Specific dollar amounts
- A percentage of your estate (i.e. one-third of your estate goes to your grandchildren, to be divided equally among them)
- Life insurance policies or retirement plans
- A specific bequest, such as a car, house, family heirloom, or business ownership
As you plan your estate, be mindful of the potential tax benefits and consequences and how they may affect your beneficiaries, as these can vary depending on the asset.
While estate planning is a way to ensure your wishes are respected, it’s also a good idea to talk to the parents of your grandchildren to be sure you are not disrespecting any of their wishes. Some parents may fear that receiving large sums of money may hinder their child’s development, particularly if it takes away their need to be financially independent.
Take those extra steps to know that your gifts will be truly helpful and appreciated.
Name your grandchildren as beneficiaries
When you name your grandchildren as beneficiaries, there are a few key considerations to keep in mind.
For example, it’s common for grandchildren to be added to the estate plan as they join your family—but this process may require amendments from a licensed estate planning attorney. Another option, as opposed to naming specific beneficiaries, is to divide a portion of your estate equally among all “then living” grandchildren. This will ensure that all later-born grandchildren are included, even if they are not mentioned by name.
You can also include step-grandchildren in your estate, but note that they will need to be named specifically in order to be accounted for.
Set specific preconditions if needed
You may choose to set up conditions in order to protect your legacy. For example, your will or trust can require that beneficiaries meet certain conditions before inheriting your assets—they must survive you or be 21 years of age, for example.
You can also set conditions related to behavior that will suspend or cease distribution of assets if applicable—poor grades in school or drug use, for example.
For those who are under the age of 18 or have other reasons they should not directly receive their inheritance (such as a disability or substance abuse problems), you may also choose to establish a trust.
Establish a trust
Instead of directly distributing large sums of money, you can use trusts for specific purposes: to go toward education expenses, buying a home, or starting a business, for example. You can also designate a specific age when the beneficiary of the trust is able to withdraw money and use it as they wish.
Types of trusts include:
- Health and Education Exclusion (HEET) trusts, intended to pay the medical and education expenses of a beneficiary two or more generations below the creator of the trust
- Gift trusts, which allow for avoiding taxation on gifts that exceed annual gift tax exclusion limits
- Generation-skipping trusts, which can be designated to anyone 37.5 years younger than the creator of the trust (though be mindful of generation-skipping transfer taxes)
Putting a qualified disability trust in place
A qualified disability trust (QDisT) can be designated for disabled individuals under the age of 65 who are, at a minimum, receiving SSI or SSDI benefits. Note that it doesn’t end once the grandchild turns 65, but it must be established beforehand.
Attorneys should conduct a case-by-case analysis to determine if a QDisT is a suitable estate planning strategy for their clients. If you’re unsure whether a QDisT is right for you and your grandchild, be sure to speak with your estate planning attorney to gain personalized insight.
Set up a 529 plan for their college savings
529 plans, created under section 529 of the Internal Revenue Code, are designed to help pay for qualified education expenses such as college tuition, apprenticeship programs, or student loan repayments. Grandparents may choose to either establish or contribute to the fund—and the funds are not counted toward financial aid eligibility calculations.
Funds in a 529 account never transfer directly to the beneficiary, regardless of age. For example, if the grandchild does not use up all of their funds for college, the money can be put toward a sibling’s education.
This is different from a custodial account, in which the funds are transferred to the beneficiary at the age of majority.
Plan for your family’s future with a Texas estate planning attorney
When estate planning, it’s important to consider all of the possibilities and options—and lay out your preferences in a clear, non-negotiable way. Failure to do so may result in legal challenges and family complications, not to mention your wishes not being fulfilled. After all, you want your own story to have a happy ending (like when Max comes home to a warm meal in Where the Wild Things Are).
Estate planning strategies differ from person to person. Contact us to speak with an experienced estate planning attorney to determine the right strategy for your unique situation.