Planning for the Lights of Your Life: Grandkids!

For many grandparents, grandchildren are a delight and a treasure with whom they share a special bond and even special traditions. They are the future, the next generation, the legacy bearers of the family, and many grandparents want to ensure that their grandchildren are financially secure.

Planning for your grandchildren’s future can take many forms, and there are benefits and drawbacks to the ways in which you can provide for them. Let’s take a look at a few of these ways.

1. An outright gift. The IRS allows you to give up to $15,000 per year to any individual without having to report it. If you’re married, that number jumps to $30,000 per year, per individual so long as gifted by both spouses. There are any number of ways this can be helpful to your grandchildren, but you want to be sure that everyone involved understands the exact nature of the gift and the effect of gifting on your overall plan and the recipient. Is it a true gift? Is it an advance on a future inheritance? Is it actually a loan? Having proper documentation in place is necessary to ensure that your wishes are made clear. Also consider your grandchild’s maturity and any public benefits your grandchild may need to preserve. Will they use the money wisely, or will they squander it? Will the gift make you or your grandchild ineligible for public benefits like Supplemental Social Security or Medicaid assistance? Once you make an outright gift, you relinquish your control over how the funds are used. Any gifting can have unintended consequences so best to discuss gifting with an experienced elder law attorney well-versed in all phases of planning, including asset protection, long term care, special needs planning, and one able to advise you about strategic use of your assets in an overall plan over time.
2. A trust. Trusts are thought to be complex, but they’re actually a powerful tool for simplification. They can be the easiest way to ensure your wishes get followed, and make that assurance far simpler than what might occur without a trust. It all depends on you, your wishes, and what kind of trust (there are many kinds!) best serves your goals. Trusts can also protect your assets, leverage the value of assets, and give peace of mind should you get ill for a long period of time. They can also simplify helping a grandchild go to college, purchase a home, etc. after your death and avoid ongoing probate reporting costs! This is particularly beneficial if your grandchild is a minor or doesn’t yet possess the maturity to handle an outright gift.
3. A 529 or Qualified Tuition plan. This plan lets you reduce your taxable estate by earmarking funds exclusively for education. Earnings from the investments (usually mutual funds) are tax-free, as are the distributions, provided they are used for educational expenses. And it’s not just for college. A 529 plan can be used for any postsecondary education programs, as well as for elementary or secondary schools, be they public, private, or religious. Furthermore, you can change the beneficiary of a 529 plan or transfer any unused assets to another 529 plan within the same family.

There are many ways in which you can provide for your grandchildren (not all of which are mentioned here), but keep in mind that your grandchildren are not the only ones you need to consider when planning for their futures. You also need to keep yourself and your own needs in mind. Don’t give away so much that you don’t leave enough to take care of yourself or your spouse in a future you can’t predict. Keep in mind your potential long-term needs, including the possibility of long term care. Statistically, it’s highly likely you’ll need it. The gifts you give your grandchildren could make you incur a penalty period before being able to access Medicaid assistance for you or your spouse. With the average daily cost of skilled nursing care in Washington State at $313 a day (that’s more than $9000 a month!), it’s crucial to consider the best way to gift. Any gifting needs to be done with the legal advice of an elder law attorney with extensive experience in all factors of planning for the second half of life.

Grandchildren are wonderful and as grandparents, you want to know that they will be cared for, especially in today’s world where the challenges facing them for their adult lives may be far more complex than kids growing up 30 years ago. Be sure to consult with experts before making any major decisions that will impact your financial situation and security. The attorneys at Phelan Webber Pettis P.S. can help you navigate the waters of elder law and develop a plan to care for the lights of your life.

Beckie J. Pettis is a Washington attorney with the firm Phelan Webber Pettis P.S. The firm focuses on estate planning, with a special focus on planning for the 2nd half of life. The firm also assists with trust administration, Washington probate, guardianship, special needs planning, and long term care Medicaid planning.

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