Being a grandparent means you get all the fun of being a parent without all the worry and responsibility of being a parent. As a grandparent, you may want to include your grandkids in your estate plan. To make the most out of those gifts, here are some tips for including your grandchildren in your estate plan.
- Do not make promises. As a grandparent, you may get carried away and want to make promises for future gifts. For example, you might find yourself promising to cover college expenses, buy a first car, or pay for a wedding in the future. Because you can’t know what your own financial situation will be when your retirement years arrive, you could end up having to renege on the promise, so it is best to avoid making promises.
- Consider gifting now instead of after you are gone. If your long-term plan is to pass down a portion of your estate to your grandchildren, make why not make some of those gifts while you are still alive? Not only will you gain a tax advantage from doing so, but you will also have the pleasure of being able to watch your grandchildren enjoy the gifts you give them.
- Use the yearly exclusion now. The yearly exclusion allows every taxpayer to make tax-free gifts valued at up to $15,000 ($30,000 for married taxpayers) to an unlimited number of beneficiaries. Gifts made using the yearly exclusion do not count toward the taxpayer’s lifetime limit for federal gift and estate tax purposes.
- Pass down your legacy in your estate plan. By incorporating legacy planning tools and strategies into your estate plan you can pass down more than just assets to your grandchildren. You can also continue to pass down your beliefs, ideals, faith, and philosophies that are an integral part of who you are and who you hope your grandchildren will one day become.
- Stagger distributions to young beneficiaries. A minor cannot inherit directly from your estate, meaning you will need to utilize a trust to protect the inheritance you leave your grandchildren if they have yet to reach adulthood. Once they become a legal adult, however, you may still wish to delay the inheritance to allow time for a beneficiary to grow and mature. Using that same trust, you can also stagger distributions of the inheritance instead of gifting a lump sum.
- Try to avoid disputes. While you may never admit it out loud, you probably have a favorite grandchild. You may be tempted to gift more to that grandchild as a result. There is certainly no law that requires you to gift to all grandchildren equally; however, absent a good reason not to, you may wish to do so to reduce the likelihood of probate disputes. Legally, the fact that you played favorites will not invalidate your Will, but it increases the chance that a beneficiary will try and find a way to have your Will declared invalid.
- Take advantage of tax benefits. Although making gifts is an altruistic endeavor, there is no reason why you shouldn’t also reap the tax benefits from the gift. Check with your estate planning attorney and tax advisor to see if you can combine your gifts to grandkids with any tax breaks or other estate planning incentives.
Contact Us
Please download our FREE estate planning checklist. If you have additional questions or concerns about including your grandchildren in your estate plan, contact us at the Northern California Center for Estate Planning & Elder Law by calling (916)-437-3500 or by filling out our online contact form.
Timothy P. Murphy is an estate planning and elder law attorney whose practice emphasizes helping people to build, preserve and pass on their wealth. He works with his clients to accomplish their goals while avoiding unnecessary court proceedings and minimizing or eliminating exposure to death taxes.
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