You have raised your children, they are successful and self-sufficient, and you want to share your wealth with someone who needs assistance.
Estate planning probably should be called people planning. We are not really planning for the estate, we are planning for people. For many of us, our favorite people are our grandchildren.
What Are The 3 Estate Planning Tools?
There are three common estate(people) planning tools that can be used to pass wealth to your grandchildren: Uniform Transfers to Minors accounts, 529 plans and trusts.
Why plan at all? Why not just gift money or assets directly to your grandchildren?
That is certainly an alternative if your grandchildren are legally adults. However, once you do that you have no control over the gift and you run the risk that the gift will be wasted. And direct gifting is not a viable alternative if your grandchildren are still minors, because minor children don’t have the legal capacity to buy, sell, spend, invest or otherwise do the normal things that legal adults do.
Uniform Gifts to Minors Account
Your first planning option is the Uniform Gifts to Minors account. It can be set up at a bank, or an investment company. The account must have an adult person as a custodian. The custodian is in charge of investing the funds, and spending them for the benefit of the minor. The account belongs to the child but he or she has no control over it until he or she turns 21.
You can be the custodian, but let’s face it none of us will last forever. At age 70 I might not make it to see my 4 week old granddaughter make it to 21. So you need to pick a custodian carefully and have an alternate.
I have had to go to court to appoint a successor custodian for a uniform transfers to minors act account where the custodian died and there was no successor appointed.
UTMA accounts are simple to create, and simple to use. The two big issues that come up is who is going to be the custodian and the minor is going to take control at age 21.
Many people are not prepared by training or experience to manage financial assets at age 21, so if we are talking about a substantial amount of wealth a trust may be a better choice.
What Is A Trust?
A trust is basically an agreement between a person creating a trust, called a Trustor and someone managing a trust called a trustee. A trustee can be a natural person or a bank or trust company.
If you create a trust you can select the trustee, the beneficiaries and the terms and conditions for distributing wealth to the beneficiaries. If you have a substantial amount of wealth to add to the trust I recommend a professional trustee such as a bank trust department. The fee paid to the bank for their services is protection against the wealth being stolen or lost by a natural person as a trustee.
What Is A 529 Plan?
A 529 plan refers to a section of the Internal Revenue Code. This provides a means to set up a college fund with certain tax advantages. Like everything else connected to the government there are restrictions, regulations and complications. But this can still be a good choice, depending on the circumstances.
Get Experienced Estate Planning Attorneys On Your Side
Our estate planning attorneys are available to discuss people planning with you for your favorite people: your grandchildren.