One of the most important aspects of any estate plan is the creation of a plan for the distribution of your estate assets after you are gone. If you are a grandparent, you may wish to include your grandchildren as beneficiaries in that plan. While gifting to grandchildren in similar to gifting to adult children, there are some unique considerations. To help you plan according, the St. Louis estate planning lawyers at Amen, Gantner & Capriano, Your Estate Matters, LLC offer the following tips for gifting to grandchildren:
- Avoiding making promises that you might not be able to keep. As a grandparent, you may get carried away and want to make promises for future gifts. For example, you might find yourself promising to cover college expenses, buy the 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, so it is best to avoid making promises.
- Take advantage of tax benefits from gifts you make. 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.
- Make lifetime gifts. If your long-term plan is to pass down a portion of your estate to your grandchildren, make 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.
- Utilize the yearly exclusion when making gifts. The yearly exclusion allows every taxpayer to make tax-free gifts valued at up to $15,000 ($30,000 for married taxpayers) 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.
- Stagger distributions to avoid gifting a lump sum to a young adult. 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 can also stagger distributions of the inheritance instead of gifting a lump sum. For example, the trust terms could dictate a beneficiary receives a percentage or set amount at age 18 with increasingly larger distributions at ages 21, 25, 30, and 35. As the Settlor (creator) of the trust, you create the terms.
- Favoritism increases the likelihood of disputes. While you may never admit it out loud, you probably have a favorite grandchild. You may be tempted to gift more to that grandchild as a result. There is certainly no law that requires you to gift to all grandchildren equally; however, absent a good reason not to, you may wish to do so as a way to reduce the likelihood of probate disputes. Legally, the fact that you played 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.
- Keep something for yourself. 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.
- Incorporate your legacy into the gifts you make. By incorporating legacy planning tools and strategies into your estate plan you can pass down more than just assets to your grandchildren. You can also continue to pass down your beliefs, ideals, faith, and philosophies that are an integral part of who you are and who you hope your grandchildren will one day become.
Contact St. Louis Estate Planning Lawyers
Please download our free estate planning worksheet. If you have additional questions or concerns about gifting to grandchildren, contact the experienced St. Louis estate planning lawyers at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.