Often, grandparents wish to set aside a certain amount or a certain percentage of their estate specifically for their grandchildren. There are several options available to accomplish this objective:
1. Establish 529 college savings plans. This option can be beneficial from an income tax standpoint. You can remain the owner of the plan during your lifetime while designating a specific grandchild as the beneficiary of each account. Keep in mind, however, that the funds are only available (without penalty) for certain approved educational expenses and might not include tuition for non-traditional educational institutions such as cosmetology colleges. If you choose this option, be sure to designate a successor owner on the account upon your death.
2. Name a grandchild as the direct beneficiary of a life insurance policy or deposit account. Assuming your grandchild is over 18 year of age, this option will provide him or her with an outright distribution of cash upon your death. This option will not allow you to determine how your grandchild can use the cash. If your grandchild is a minor, this option is not a good solution because naming minors as direct beneficiaries will create the need for a guardianship proceeding in court upon your death.
3. Create trusts for your grandchildren within the terms of your Will. Within your Will, you can create testamentary trusts for your grandchildren in which you designate the trustee of each trust, at what age your grandchild can receive an outright distribution, and what the assets can and cannot be used for in the meantime. Keep in mind, however, that if you are relying on a Will to transfer your assets upon your death, your estate will most likely be subject to a probate proceeding in court. Also keep in mind that only those assets you die with that are titled solely in your name, with no designated beneficiaries, will be part of your probate estate. Any assets with co-owners or designating direct beneficiaries will be distributed outside of your Will and will not be distributed to any trust established within your Will.
4. Create trusts for your grandchildren within the terms of your Living Trust. Within a fully-funded Living Trust, you can create trusts for your grandchildren and ensure these trusts are funded upon your death immediately, privately, and without the need for a costly and lengthy probate proceeding. Through a comprehensive estate plan, you can even create incentives for your grandchildren. For example, you can direct that the assets in your grandchild’s trust are only available for his or her post-high school education until the age of 30 or until he or she obtains a bachelor’s degree, whichever event occurs first.
Regardless of which option you choose, it is important to make sure that all the pieces to your estate planning puzzle, including ownership and beneficiary designations for each of your assets, fit together to ensure a smooth transition upon your death.
If you have any additional questions about estate planning, or would like to consult an estate planning professional, please contact our offices. We can make sure you have a comprehensive plan that is tailored to your unique needs and goals.
