~ Article by Kevin Ellman, CFP ®
If you want to leave behind a legacy and ensure that your children and grandchildren will be taken care of, there are a number of important factors to consider.
The first step is to figure out what you want to do. Ask yourself the question: What do your children need? If you have two or more children, does one need more help than another? Essentially, the decision you need to make is between treating them equallyor treating them fairly after taking into account their particular circ*mstances. Do they have a particular need such as funds for education or a home purchase? Consider these same questions when thinking about how you would like to provide for your grandchildren.
Next, you need to think about asset protectionor what can be thought of as, putting a “moat” around the money. Say you want to leave money to your youngest child, but are concerned that he or she is not well acquainted with managing money. The best way to do this may be to use a trust, which will allow you to apply restrictions on how the money is accessed. The trust will have a trustee of your choosing to act as an administrator. This person should, first and foremost, be someone you trust. They should also be practical, good with finances and capable of dealing with lawyers and accountants.
The trustee will be tasked with following the terms of the trust that you decide upon when you create the trust. You can be strict and deem the money “for income only,” or you can be liberal and have no restrictions at all. As an alternative, you can leave all the decisions on distributions up to the trustee. In this instance, it would be even more essential that you have complete confidence in the trustee’s judgment. Some trusts use the attainment of various ages as a means of distributing out the money in a trust gradually. For example, you could release a quarter of the money when the recipient reaches the age of 30, and then release the remaining three quarters every 5 years, in order to ensure that it lasts for an extended period of time. Other trusts, sometimes referred to as Dynasty Trusts, are never fully distributed to the beneficiaries and stay in trust for generations.
Trusts are great for leaving large amounts of money. If you are interested in leaving a smaller amount of money and are not overly concerned with how quickly it is used, 529 plans or UTMA accounts are a good option. You could set up a college savings plan for your grandchildren using a 529 plan.
Another option is to leave your IRA to your children. If you do this, make certain you get professional advice to ensure the best tax result. Under the right circ*mstances, when they inherit the account, they may be able to defer the income taxation of the account over their life expectancy, which is typically long period of time.
The best way to leave money behind for your children and grandchildren is to think about how you would like to help each individual and to ensure that the money you leave behind will be both protected and used appropriately.
Learn about the Wealth Preservation Solutions Estate Planning and Asset Protection Process.
Asset protection plans should be developed and implemented well before problems arise. Due to the fraudulent transfer laws, asset transfers that occur in close proximity to the filing of a lawsuit or bankruptcy can be interpreted by the court as a fraudulent transfer. Proper structuring of these assets is imperative. Please seek proper legal and tax advice prior to engaging in re-titling/structuring of any assets. Please note that laws are subject to change and can have an impact on your asset protection strategy.
FAQs
Consider a Trust for Minors
What is the best way to leave inheritance to grandchildren? ›
Trusts can be especially beneficial for minor grandchildren, as they allow more control of the assets, even after your death. By setting up a trust, you can state how you want the money you leave to your grandchildren to be managed, the circ*mstances under which it can be distributed, and when it should be withheld.
Is it normal for grandparents to leave money to grandchildren? ›
In some cases, however, it makes better sense for grandparents to leave property to their grandchildren—for example, if the grandparents have reason to believe that their own children would not responsibly use the money intended for the benefit of the grandchildren, or if the grandchildren's parents are independently ...
What is the best way to leave your children your assets? ›
Bequeathing your property can be done by creating a revocable trust. With a revocable trust, you can name your children as successor trustees so ownership of your home would pass directly to them without probate.
How to leave grandkids retirement savings and not a huge tax bill? ›
IRA Conversions
You can convert over several years to help minimize the annual tax bite. Yes, you'll essentially be prepaying the income tax. But once the money is in the Roth IRA, it'll grow tax-free, and the grandchild can take money from the Roth IRA tax-free once they inherit it.
How do I transfer wealth to grandchildren? ›
6 Ways to Pass Wealth to Your Children and Grandchildren
- 401(k)s and IRAs. These grow tax-free while you're alive and will continue tax-free growth after your beneficiaries inherit them. ...
- Taxable accounts. ...
- Your home. ...
- Term life insurance. ...
- Whole life insurance. ...
- Annuities.
When you give an inheritance before death, you have the opportunity to offer your guidance along with it. You can encourage recipients to continue your legacy of giving and helping others. You can share your knowledge and teach others how to manage assets for subsequent generations.
What does the Bible say about grandparents leaving inheritance to grandchildren? ›
Proverbs 13:22 CSB
A good man leaves an inheritance to his grandchildren, but the sinner's wealth is stored up for the righteous.
How much does the average grandchild inherit? ›
The data showed that the average inheritance received from grandparents was$1,458, and the amount inherited tends to increase with age.
What is the golden rule of grandparents? ›
The golden rule for grandparents is to love unconditionally, offering unwavering support and affection to their grandchildren. It involves respecting parents' authority and decisions while fostering a deep emotional connection.
If the trust is structured properly, it can have a tax advantage for your beneficiaries. Assets that have gone up in value will receive a “step-up” in basis on your death, which means your beneficiaries will pay less in capital gains taxes. Assets that are gifted do not receive a “step-up.”
How to avoid paying taxes on inherited money? ›
- How can I avoid paying taxes on my inheritance?
- Consider the alternate valuation date.
- Put everything into a trust.
- Minimize retirement account distributions.
- Give away some of the money.
One of the more common instruments parents choose to protect their adult children is a trust. A trust is a way to hold and set aside money for someone while providing specific requirements or limitations for accessing the assets.
Do grandparents ever leave money to grandchildren? ›
Grandparents can leave assets to grandchildren using any of several available estate planning tools, including: Naming the grandchildren as beneficiaries in a will, especially to receive certain family heirlooms. Creating a trust and naming a grandchild as a beneficiary.
How much money can you give to your grandchildren tax-free? ›
Perhaps the simplest approach to gifting is to give the grandchild an outright gift. You may give each grandchild up to $16,000 a year (in 2022) without having to report the gifts. If you're married, both you and your spouse can make such gifts.
How can I leave money to my child without taxes? ›
Four Ways to Give Money Tax-Free to Your Kids When You Die
- Leave behind real estate. My parents just sold their home after 40 years. ...
- Leave behind a Roth IRA. ...
- Leave behind taxable investment accounts. ...
- Buy life insurance.
Class A beneficiaries include parents, grandparents, spouses, children, mutually acknowledged children, grandchildren, great-grandchildren (etc.), domestic partners, and civil union partners of the decedent. If you are a Class A beneficiary, you do not have to pay inheritance tax on any transfer made to you.
How does inheritance work for grandchildren? ›
Including a Grandchild in a Will or Living Trust
If a grandparent wishes to provide for a grandchild, they should do so explicitly in a Will or living trust. If grandchildren are under the age of 18, assets must be left in a testamentary trust because minors are not permitted to own assets directly.
Where in the Bible does it say to leave your inheritance to your grandchildren? ›
Proverbs 13:22 CSB
A good man leaves an inheritance to his grandchildren, but the sinner's wealth is stored up for the righteous.
What is the best type of trust for grandchildren? ›
A revocable living trust is an excellent estate planning tool for making gifts to grandchildren for several reasons. One important reason is that by using a living trust to hold assets intended for your grandchildren you can appoint someone of your choosing as the Trustee of the trust.
