by: Begley Law Group

Providing for your grandchildren in your estate plan is a great way to commemorate the bond between you and your grandchildren and to allow your grandchildren to appreciate you long after you are gone.

            There are many goals that you, as a grandparent, often have to set your grandchildren up for future success:

  • Pocket Money. You want your grandchildren to have sufficient pocket money to enjoy the little things in life.
  • College Education. You want your grandchildren to receive a college education without incurring substantial student loan debt.
  • You want your grandchildren to be able to buy a car.
  • You want your grandchildren to be able to own a home.
  • You want your grandchildren to be able to start a business, if they choose.

            There are a number of tools available to plan for these goals. Many of these tools can be used in conjunction with each other to create a plan that works for your estate and your grandchildren’s future.

  • Lifetime Gifting. You can gift each of your grandchildren up to $18,000 per year by taking advantage of the annual exclusion gifts under the Federal Gift Tax law. Gifts for college education or medical care are exempt regardless of amount, as long as the payment is made directly to the institution or provider.
  • Specific Bequest in Will or Trust. A will or trust can provide that each grandchild receives a small, but fixed amount. These amounts may be $1,000, $5,000, $10,000, $25,000, or $50,000, depending on the size of the grandparents’ estate and the number of grandchildren.
  • Percentage Share of Estate. Your will or trust can provide that your grandchildren receive a percentage share of your total estate. Typically, this is done on the death of both grandparents. Often, one equal share of the estate is set aside for each child and one separate equal share is divided equally among the grandchildren.

Money can be left outright to your grandchildren if they are old enough or can be held in trust. If held in trust, a trustee (such as the grandchild’s parent) is authorized to use the money for your grandchild’s health, education, maintenance, or to assist your grandchild in buying a home or starting a business. At a certain age, often 25, 30 or 35, your grandchildren could be entitled to withdraw the money and use it as they please.

  • Special Provisions in Will or Trust. Grandparents tend to love all their grandchildren, but they recognize that some could benefit from some motivation. You may set up an incentive trust to motivate your grandchildren to achieve goals. Upon certain triggering events, such as graduating college or attaining a job paying a certain salary, your grandchild can receive distributions from the trust. Additionally, some grandchildren may have problems with drugs, alcohol, or criminal behavior. A provision can be made in wills and trusts to provide for these grandchildren.
  • 529 Plan. You may establish and/or contribute to a 529 Plan to provide for your grandchildren’s college education expenses. Income earned on a 529 Plan is not taxable while the money is in the Plan, and withdrawals for qualified education expenses are federal income tax free.  There are no annual contribution limits, and $18,000 may be contributed each year under the annual gift tax exclusion.  A grandparent may elect to contribute $90,000 in one year by spreading the gift tax consequence out over 5 years.
  • Life Insurance. You may purchase a life insurance policy on your child for the benefit of your grandchildren.

These tools allow you, as a grandparent, to show your grandchildren that you believe in them and are investing in their future. Both during your lifetime and long after you are gone, your grandchildren will remember the special bond you share. Contact Begley Law Group to further discuss how to best implement these options.