How Grandparents Can Protect the Family Legacy for Their Grandchildren
If you are a grandparent, protecting your family legacy for the benefit of your grandchildren is probably one of your most important estate planning goals. You have multiple options and tools to choose from in accomplishing this goal, some of which may be more beneficial for you and your grandchildren than others.
Your estate planning attorney helps you determine which alternatives work best for your circumstances and your family.
Estate Planning Considerations for Grandparents
When providing for your grandchildren is an estate planning priority, several considerations enter into choosing the right strategy or combination of tools to integrate into your estate plan. The most important factors include the size of your estate, the ages of your grandchildren, how you want the inheritance used, and the tax consequences of each option. Of course, how you provide for your children in your estate plan is also relevant.
To assess the benefits and risks of the alternative approaches, you should take all of the considerations into account. An experienced estate planning attorney can help you navigate through all the issues, weigh the pros and cons of different options, and create an estate plan that fully protects your family legacy for your grandchildren and children.
Making Direct Gifts to Grandchildren
Making a financial gift directly to a grandchild is an approach that many people consider. Direct gifts may be accomplished during your lifetime without tax consequences if the amounts are below the federal gift tax exemption amounts or qualify as educational or medical payment.
A direct gift can also be made on your death by provisions in your last will and testament. In that case, the gift is subject to probate. Another option might be to designate a grandchild as the beneficiary of a life insurance policy or an IRA (Individual Retirement Account). It’s essential to discuss these options with your estate planning attorney before you decide what to do, especially since inherited IRAs have specific risks and tax consequences associated with them.
A significant disadvantage of making direct financial gifts to grandchildren during your lifetime or in your estate is that you will have no control over how the money is spent, except for direct educational and medical payments. In making lifetime gifts, it’s also extremely important to consider your own current and future needs before you give money away to grandchildren or other family members.
Creating an Arizona 529 Plan
If your grandchild’s education is an important concern, one tool to consider is an Arizona 529 Plan, which is a college savings plan named for Section 529 of the Internal Revenue Code and sponsored and administered by the State of Arizona. A 529 Plan provides the opportunity to save for a child’s education using a tax-deferred savings tool.
While there are benefits to establishing a 529 Plan, funds deposited into the plan can only be used for educational expenses. In most cases, grandparents wish to provide for more than just their grandchildren’s education, so a 529 Plan is probably not sufficient to address all of your estate planning concerns for grandchildren.
Using a Trust to Protect Your Family Legacy for Your Grandchildren
In many situations, establishing a trust is the best choice for protecting your family legacy and taking care of your grandchildren in your estate plan. A trust has significant advantages, including the fact that a properly established and funded trust can avoid probate.
Different types of trusts can be used to provide for grandchildren, including a revocable living trust. A trust can have advantages that other estate planning approaches do not provide. Controlling financial distributions to your beneficiaries is one of the most significant benefits of a trust.
When you establish a trust, you determine how and when the trustee distributes the assets to the trust beneficiaries. You may even limit use of the trust funds to specific purposes, like education, travel, medical expenses, food and clothing, or other purposes that enhance the beneficiaries’ quality of life. A trust can be drafted to benefit multiple grandchildren, taking each child’s individual needs into account.
A trust also protects your legacy by preventing a financially-irresponsible beneficiary from wasting money or giving it away. Using a trust for your grandchildren may also protect the assets from claims by an ex-spouse of an adult child. In addition, a trust can provide for future generations of your family, including grandchildren born after you establish the trust.
Even if you use a trust as the primary way to provide for your grandchildren, you can still leave individual gifts for grandchildren as part of your estate plan, such as items of personal property that have special memories or meaning to you or to your grandchild. Some grandparents include a handwritten note to the grandchild to explain the reason and meaning for the gift, which adds a special touch that will always have meaning for the grandchild.
Talk With an Experienced East Valley Estate Planning Attorney
At Peterson Law Offices, estate planning is a primary focus of our practice. If you are a grandparent wishing to establish an estate plan to protect your family legacy and provide for your grandchildren and children, we invite you to reach out to us.
Your first consultation is always free of charge. We provide top-quality services at affordable prices and welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.
