If you are a grandparent, you would undoubtedly agree that the time you spend with your grandchildren is precious. As a grandparent, you get all the benefits of children without all the responsibilities. You also get to impart your wisdom and the lessons you have learned to a younger generation. To help ensure your grandchildren’s financial security, you may decide to include your grandchildren as beneficiaries in your estate plan. If so, a Murfreesboro estate planning attorney at Bennett | Michael | Hornsby discusses some important estate planning considerations for grandparents.
- Pass down your legacy along with material gifts. By incorporating legacy planning tools and strategies into your estate plan you can pass down more than just assets to your grandchildren. You can incorporate your beliefs, ideals, faith, and philosophies that are an integral part of what makes you the person you are.
- Make gifts while you are alive. If your long-term plan is to pass down a portion of your estate to your grandchildren, 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.
- Make use of the yearly exclusion. The yearly exclusion allows every taxpayer to make tax-free gifts valued at up to $16,000 ($32,000 for married taxpayers) as of 2022 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. You could pass down a sizeable chunk of assets to your grandchildren tax-free if you start using the yearly exclusion now.
- Don’t make promises. As a grandparent, you may get carried away and want to make promises to your grandkids. For example, you might find yourself promising to cover college expenses, buy your grandchild’s 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. To avoid hurting your grandchildren and feeling guilty yourself, don’t make promises.
- Make sure you are financially secure before making gifts. Grandparents frequently become so enamored with their grandchildren that they want to give them everything. Resist the temptation as you may need your assets to live comfortably during your retirement years.
- Stagger the inheritance you leave to a grandchild. 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 created when they were a minor, you can stagger distributions of the inheritance they receive as an adult. For example, the trust terms could dictate a beneficiary receives a percentage or set amount at age 18 with increasingly larger distributions as your grandchild gets older.
- Do what you can to prevent disputes. While you may never admit it out loud, you probably have a favorite grandchild. You may be tempted to give more to that grandchild as a result. There is certainly no law that requires you to split things equally among your grandchildren; however, favoring one grandchild increases the likelihood of probate disputes. Playing 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. If you feel strongly about giving more to one grandchild, consider doing so while you are still alive to prevent a dispute after you are gone.
- Take advantage of tax breaks and other incentives. 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 a Murfreesboro Will Attorney
If you have additional questions or concerns regarding estate planning for grandparents, consult with an experienced Murfreesboro estate planning lawyer at Bennett | Michael | Hornsby as soon as possible. Contact the team today by calling 615-898-1560 to schedule your free appointment.