As a Grandparent, the best gift you can give to your Grandchild is an Estate Plan.
Grandparents have a special relationship with their grandchildren. Leaving money to your grandchild is a way to support and secure their future by taking care of their financial needs.
You might already know the importance of creating an Estate Plan for your Assets. You might have already heard of Digital Estate Planning – an Estate Planning exclusive to your Digital Assets.
Questions to ask yourself before creating an Estate Plan
Ask yourselves these questions before adding your grandchildren as beneficiaries to your Estate Plan.
- How old are your grandchildren now? Your concerns about their tuition and other educational expenses would mostly apply to minors and young adults.
- Will you completely skip your children in your Estate Plan? Or, will you divide your Estate equally between your children and grandchildren? Or, do you have another Legacy Plan exclusively for your children?
- Are you engaging in Estate Planning for estate tax purposes? Generation Skipping Transfer (GST) taxes are paid anytime you give property to a grandchild or great-grandchild. 40% of the gift value is paid as tax and there is a tax exemption of up to $11.7million.
What is unique about Estate Planning for Grandparents?
If you do not have an Estate Plan, you should know the state has a process once someone passes intestate i.e. when someone passes away without having made a Will.
Dying intestate also means your family will have to deal with a long and challenging probate process. This can further give rise to disappointments, especially if your family members do not inherit your property the way you wanted them to.
In order to avoid this outcome, we recommend you to start planning for your Estate i.e., create an Estate Plan that takes all your wishes into account. If you have grandchildren and would want them to receive a specific portion of your Estate without it first flowing through their parents, you will have to make necessary arrangements.
Leaving your entire Estate to your children might seem like a good option but you will also have to consider the chances of your assets being depleted before it could reach your grandchildren once they turn 18.
Fortunately, there are some financial tools that could help you add them as beneficiaries to your Estate and plan for their future.
Financial Tools to help you in planning your Estate
As a grandparent, you might be concerned about your grandchild’s incentives, pocket money, tuition fees, automobile costs and much more. There are certain financial tools you can use to address these concerns.
As a grandparent, you can take advantage of the annual exclusions under Federal Gift Tax Law and give up to $14,000 (tax free) to each grandchild. Further, you can make use of the unlimited gifting option available for education and health care expenses, as long as these payments are made directly to the educational or medical institutions.
Specific Bequests in Wills or Trusts
You can leave a specific amount of money or assets to your grandchildren through a Will or Trust. These estate planning tools allow one to choose or set specific rules. For example, if there is a surviving grandparent, the assets can be held until they pass away. Also, Specific Bequests in a Will are helpful while making provisions for grandchildren with mental illnesses or addiction problems.
Share a percentage of their Estate
As a Grandparent, you can make provisions such that your grandchildren receive a certain percentage of your Estate. If a grandchild is 18 or above, they can directly receive this share of the Estate. If a grandchild is a minor, a grandparent can appoint a trustee to look after the assets until the grandchild turns 18.
UGMA and UTMA
You can also pass down your Estate through gifts to your grandchildren via UGMA and UTMA. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allows you to create a custodial account and on turning 18 or 21 (depending on the state), your grandchildren receive the assets bequeathed to them.
When to update your Estate Plan
Any major life change calls for an update in your Estate Plan. This can be a new addition to the family, demise of a loved one, marriage or divorce, and adoption. Any time your family structure changes, make it a point to update your Estate Plan.
Having an Estate Planning Lawyer you trust and who fully understands your wishes makes your update process easier. Every time something in your family changes and you want this to reflect in your Estate Plan, talk to your Estate Planning lawyer and let them know of the changes you would like to make.
Let this year’s Grandparents Day be a reason for you to include your grandchildren in your Estate Plan and make arrangements to secure their future.