Congratulations on welcoming the newest addition to your family. Being a new grandparent changes everything -- including how you approach your finances -- and is one of the most joyous occasions in life. The excitement of a new baby -- and all of the firsts that come with this bundle of joy -- can grab all of your attention and focus. That being said, there is one thing that every new grandparent must do as soon as possible that is often overlooked. Specifically, every new grandparent should immediately create (or revise) an estate plan so that it includes your family’s newest generation.
Estate Planning for Grandchildren
Having an intentional financial strategy for incorporating your new grandchild’s future in your overall estate plan is an important part in addressing your growing family’s needs.
Not having an estate plan can have unintended results for your surviving family members. This is because intestacy -- or your state’s applicable laws that determine who receives your assets upon your death if you have no estate plan -- may not work the way you’d expect. As a result, it can have disastrous results for grandparents who had other intentions or plans for their assets. Instead of having the government decide who gets your asset when you die, now is the time to take control, while you can still put your wishes down on paper.
Failing to update an existing estate plan when a grandchild is born can be just as disastrous as intestacy. While you may have contemplated the birth of grandchildren in your initial estate plan, you may not have put a mechanism in place to ensure your grandchild receives the maximum benefit you intended. Likewise, failing to review or revise a beneficiary designation may inadvertently disinherit a grandchild. A comprehensive trust with coordinated asset ownership is the best way to fully protect your multi-generational family.
Options for Grandparents
There are several ways to plan for your grandchildren’s future. There are also different tools that may be used to incorporate this newer generation into an estate plan.
One way is to give the gift of education. With college tuition rising every year for both private and public universities, setting aside money for your grandchild’s education is one way to plan for their future success. With a 529 plan, you can set money aside that has the potential to grow tax-free until it is needed. Better still, the 529 money remains tax-free when spent on qualified higher education expenses.
Another way to provide for your grandchildren is by establishing a trust. You can set aside a specific amount of money that can be used only for your minor grandchild’s benefit. The child’s parent, or even grandparents themselves, can be listed as the custodians of the account. As a custodian, the designated adult can make spending decisions on behalf of the minor child until he or she reaches the age of majority in his or her state of residence -- or the age listed in the trust instrument.
To help ensure a successful future for your new grandchild, contact a knowledgeable estate planning attorney to learn about the options you have available so you can provide for this child’s future.