Having a grandchild can be an incredibly rewarding experience, grandparents having a chance to rediscover the joy of babies and children and truly savor the experience. Many new grandparents often want to consider changes to their estate plan to take into consideration their new grandchild and ensure the resources they have amassed over their lifetime are shared with their new loved one or directed towards educational or healthcare purposes.
Giving Gifts to Minor Grandchildren
You’re probably loading up on all the toys the parents won’t buy, but for major gifts, you need to remember that minors cannot directly receive or own assets. So if you name the minor in your will as a direct recipient of an asset, the court will appoint a guardian to manage that asset in their best interest. This many involve unexpected costs and expenses.
If the gift is less than $5,000, it may be possible to open a bank account that is managed by a trusted adult, but larger gifts will likely come with oversight costs. You may list your grandchildren as contingent beneficiaries on your estate plan or life insurance, but the same rule applies in that the assets will be managed by a guardian until they reach majority. Remember that you can always change your estate plan if you live until your grandchild turns 18 and can legally receive larger gifts directly. If providing for your grandchild’s education is your goal, a 529 plan, funding during your lifetime or at death, is a great tax-incentivized option.
Passing Assets in a Trust
Trusts are a common way to pass assets to both children and grandchildren. Putting assets into a trust can help you pass on significant assets while still maintaining some control. You can choose the beneficiaries, direct the trust to use certain trusted professionals to help with oversight, name the beneficiaries, and even direct how the funds are distributed by giving a set of considerations regarding age and needs. Trusts can distribute property to multiple grandchildren while cutting down on administration costs.
From directing that funds first be used for educational purposes to stating the age at which a grandchild receives the bulk of the assets, trusts are a powerful tool. For grandchildren with special needs, a trust can be crafted so that their living expenses are taken care of while they remain eligible for state and federal aid. While the trustee does retain some flexibility to manage assets based on the current realities, a trust is a powerful tool to let grandparents direct funds to what they feel is the best benefit of their grandchildren.
If you’re a new grandparent and want to include your first, and perhaps future, grandchildren in your estate, reach out to an estate planning professional to discuss your options. At Dunn Law Firm, we take the time to get to know you and your specific situation in order to create a comprehensive estate plan that meets your goals. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 to set up a free consultation today.
