You spent your whole life working hard and building your financial legacy. As you survey the fruits of your labor and look toward the future, you may want to make sure it will one day fall into the hands of people you love, such as grandchildren. Without proper estate planning and clear instructions as to how your wealth should be divided after you pass away, the property and assets you leave behind may not benefit your loved ones at all. There are, however, ways to make sure the benefits of your hard work trickle down to your grandchildren for years to come.
The first thing you need to know is that there is a cap on how much money an individual grandchild can receive each year without incurring taxes. Currently, you may only gift $14,000 to an individual beneficiary each year. If you wish to encourage your grandchildren to invest your gifts or otherwise take responsible measures to grow the wealth you’ve built, you have a few choices:
- Establish a wealth creation trust: This allows you to put money into a trust for your grandchildren before you pass away while continuing to make decisions about how that money will be grown. This may be a more appealing option for grandparents who wish to pass their wealth to grandchildren who are still too young to shrewdly manage and grow it. By creating a wealth creation trust and continuing to manage the money you put in it, you may give your grandchildren an even greater gift.
- Put your gifts into a 529 Plan: This allows you to put money directly toward your grandchild’s education, which can help you incentivize your grandchildren to pursue formal education and set themselves up for success. 529 Plans are attractive for many grandparents because there is no doubt or worry about how financial gifts will be used, and there is no way for money given to corrupt be misused. This is also a tax-friendly option and you can receive a credit when you donate money to your grandchild’s education.
- Name your grandchild as a death benefit beneficiary on your life insurance policy: This ensures your life insurance payout will go directly to the grandchild (or grandchildren) you name, in the proportions you specify in your last will and testament, and into the sort of account you choose.
- Make a custodial bank account: This is essentially the same as handing your grandchild a check. In a wealth creation trust or 529 Plan, the money you gift to your child cannot be accessed by creditors or as means of paying for damages in a lawsuit. You are also not in control of how the money is used, whether it is invested, etc. However, this may be a suitable option if you wish to give your grandchild a gift and allow them to make independent decisions about how and when it is used.
Get a Free Consultation with a Phoenix Estate Planning Attorney Now
There are many more ways you can pass along your wealth to grandchildren. However, without proper estate planning, the wealth you have built up will be up for grabs, taxes, and undesirable division among your family members. If you wish to make deliberate financial gifts to your grandchildren, you must be proactive. Let’s get started on your estate plan today.
Our team at Taylor & Lihn, PLLC is prepared to help you consider your options and make savvy, well-thought-out gifts to your grandchildren. Call us at (602) 900-9860 today or contact us to receive a free consultation.