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Estate Planning for Grandparents

Posted by Lizette Sundvick | Jun 22, 2024 | 0 Comments

Grandparents with grandchild

You've hoped, dreamed, and possibly waited years, and now you finally have a grandchild – congratulations! Becoming a grandparent is incredibly special and rewarding. Your priorities and goals can change overnight as your concerns about taking care of your children now also include ensuring your grandchild is protected. It's time to include this new precious family member in your legacy planning. You should take specific steps to ensure your legacy reaches your grandchild and other potential future grandchildren.

Talk to Your Child About Their Estate Plan

Setting up a proper estate plan is as equally important for yourself as it is for your adult child, the parent of your grandchild. For those with young children, having an estate plan is essential. Without one, their assets and the hard-earned inheritance you passed on to them and their children can quickly be lost, and the judicial system could decide your family's future. It's imperative that your child put protections in place for their assets, your inheritance, and the guardianship of your grandchildren. If your child does not have an estate plan, encourage them to seek out an experienced estate planning attorney.

Include Your Grandchild in Your Estate Plan

Review your current estate plan with your estate planning attorney to discuss how and how much of your wealth you wish to pass on to your grandchild. Even dedicating a small amount to your grandchild will be appreciated as it lets them know you took them into consideration and planned for them. Your attorney can help you determine how to ensure your grandchild is included appropriately and receives your desired inheritance when they are adults. If you leave an outright distribution to a minor grandchild, it can cause the courts to become involved in sorting it out, so taking steps to include them in your estate plan properly is crucial.

Consider Tax Implications

If significant monies are being transferred to a grandchild, that is called “skipping a generation,” and there is a tax law specifically for this occurrence. The generation-skipping tax applies when someone gifts assets to someone two or more generations younger than them, either during their lifetime or after death. You'll need to include instructions in your estate plan that a gift tax return should occur to account for this inheritance. If you want to provide for your child or grandchild during your lifetime, consult your tax professional about how much you can give without using your gift and estate tax exemption. This could also be an efficient way to reduce your taxable estate while financially supporting your family.

Save for Their Education and Beyond

Given the rising cost of education, if you wish to help your grandchild with their education, consider a 529 college savings plan. It allows you to save for their education on a tax-deferred basis, and withdrawals are free of federal income tax when used for qualified education expenses. Another way to save money for your grandchild until they reach the age of majority is with a custodial account such as a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gift to Minors Act). This type of account can be used for anything, like college savings or a downpayment for their first house.

Account for a Special Needs Grandchild

If your grandchild has special needs, discuss creating a Special Needs Trust with your estate planning attorney. This trust will preserve the grandchild's eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI). Because your grandchild will not own assets in the trust, they can remain eligible for these vital government benefits. The trust can then supplement these benefits by providing for things not covered by them, like certain medical costs, caretakers, and other life-enhancing expenses.

Discuss Your Plans With Their Parent

If you plan on providing for your grandchild or leaving them an inheritance, discuss your plans with your adult child. You do not want to accidentally create a family dynamic issue, like resentment over how much of your estate you leave to your grandchild instead of them. Involve your child early on to ensure there are no surprises and there is a cohesive plan in place.

It's important to ensure that your estate plan always reflects your current wishes and includes everyone important to you, which now includes your new grandchild. With proper legacy planning, you can ensure that your connection to your grandchild remains long after you pass. They will know you cared enough to plan for them and help them create a legacy of their own.

“Grandparent's Guide to Second Generation Planning: Why Your Adult Children Need an Estate Plan” from American Academy of Estate Planning Attorneys, Inc.

About the Author

Lizette Sundvick

Lizette B. Sundvick is one of the longest practicing female attorneys in Las Vegas, Nevada. She has been a member of WealthCounsel, LLC since 2002 and has received training from various legal and coaching organizations, such as WealthCounsel, LLC, the Nevada WealthCounsel Forum (Founding President – 2009-2012), National Network of Estate Planning Attorneys,...


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