Becoming a grandparent is a significant event in most people’s lives. In addition to seeing your children become parents, you get to see a new generation being added to your family. Because grandparents tend to have such powerful bonds with their grandchildren, they may consider passing down an inheritance.
This may come from a desire to help their grandchildren financially when it comes time to pay for school (e.g., a 529 Plan), their first home, or set them up for the future. As genuine as these intentions are, there can be wrong ways to execute them. For instance, there are tax implications and potential new legal hurdles to navigate.
Special Considerations For Minors
If you pass away unexpectedly but have already created a firm estate plan, some of the people you left your assets to may still be minors. Despite your grandchildren being minors, that doesn’t mean you cannot include them in your estate plan.
In addition to the 529 Plan already mentioned for college education, you can even consult your attorney about having them named in your life insurance. Instead of worrying that you can’t, shift your focus on how you and your attorney can pass things down to your grandchildren.
Ask your attorney about the different kinds of trusts that are available to you. Essentially, a trust may allow you to state what goes to your grandchildren, when they will receive it, and the process by which it happens. The critical component is choosing an institution or adult to manage the trust on the trustee’s (your grandchild’s) behalf.
Will all the money and assets be theirs when they turn 18? Only if that is per your wishes. Although the trust will own the assets, distributing them to your beneficiaries or grandchildren is entirely up to you.
By understanding the taxes associated with the assets you leave behind, you can plan accordingly for them. If your grandchild is a beneficiary on your life insurance policy, this could come without tax implications—depending on your plan.
If your spouse receives your retirement account, then they can roll that into their account. However, your grandchildren will not have this option. If the account goes into your estate, the taxable value of your estate will increase. And if the grandchildren are old enough to receive the money from the account, there will likely be income tax associated with that.
Alexander Sherwood Keenan, PLLC
If you have further questions regarding how to pass your assets to your grandchildren, contact Alexander Sherwood Keenan, PLLC, to schedule a consultation. Our unique understanding of estate planning and elder law will allow us to build an estate plan under your wishes.