The under-30 cohort includes almost half of the American population. If you’re a senior citizen, your grandchildren probably fall under this umbrella.
You want to provide for them, right? Money can get complicated, though, and only gets more so when wills and trusts get involved.
We’re going to take some time and unpack each option available. This will give you the best way to leave money to grandchildren for any situation.
The Best Way to Leave Money to Grandchildren in Any Situation
While these methods of leaving money to grandchildren have been ranked, the rankings focus more on their flexibility and reliability than anything else. Sometimes, the ones that rank lower will work better in your situation.
Don’t think of these as rigid guidelines. Instead, go to your estate planner, accountant, or attorney equipped with the knowledge and a general sense of what you want to do.
1. Leave It to Their Parents
This ranks the lowest on the list due to unreliability and potential complications. While you may trust your children or their in-laws to perform this role, it provides no certainty. Some parents also feel it will interfere with their children’s character development.
If you’re leaving money to grandchildren, you will do better if you leave that money directly to the grandchildren in some way.
2. A Life Insurance Policy
While you might not think of this as how to leave money to grandchildren, a life insurance policy can be a good way to provide for adult grandchildren after your passing. With minor children involved, however, things get messy.
A minor cannot receive a life insurance policy directly. Instead, you or the state must name a legal guardian to handle the policy for them. This places your money at risk.
3. Outright Gifts
An outright gift or bequest represents the most direct, conventional form of inheritance. If you’re leaving money to grandchildren who have already reached adulthood, outright gifts work fine.
Minors complicate matters. If you’re providing for grandchildren in a will and some or all of them are still minors, this can involve setting up specific types of accounts or even court-controlled conservatorships.
4. Healthcare and Education Exclusion Trusts
A healthcare and education exclusion trust (HEET) offers a way of leaving money in a will to grandchildren without incurring as many taxes. These trusts limit the use of the money for healthcare and education expenses. This exempts them from lifetime gift limits.
These can also exempt the money from generation-skipping tax limits if donations also go to a charitable organization from the trust. This method lacks the flexibility of the higher-ranking methods.
5. Generation-Skipping Transfer Trusts
A generation-skipping transfer trust can handle nearly $12 million in assets without subjecting them to the estate tax. Any person at least 37.5 years younger than you can be a recipient of such a trust.
You can also set terms for the money. The only downside of this type of trust comes from its irrevocability. You cannot retrieve money once it’s placed in the trust. For more information on generation-skipping trusts, read this article.
Care for the Future
No one wants to imagine their relatives struggling after they pass. Consider the best way to leave money to grandchildren and other relations during your estate planning, and make sure no one gets left out in the cold.
Have other family-related concerns? Check out the family section of our blog for more information. If it’s estate planning you’re concerned with, the legal and finance sections might also be good reads.
