Many grandparents want to pass some of their wealth to their grandchildren. If you would like to do so, the professionals at Elder Care Direction can help you to understand the different ways to pass on wealth to grandchildren, including outright monetary gifts, paying for specific costs, or putting money for their benefit in a trust. A trust might allow you to control when your grandchildren will receive the money and how it will be distributed.
What a trust allows you to do
When you put money in a trust account for the benefit of your grandchild, you are able to do the following:
- Control how the money can be used
- Release money when your grandchild reaches key milestones instead of all at the same time
- Protect your grandchild’s inheritance such as problems with creditors or substance abuse issues
- Assist your grandchild to meet certain goals such as starting a new business or buying a home
Setting up a trust
Typically, gift trusts are established as irrevocable trusts. Once the one for your grandchild has been set up, you will not be able to change your mind or to reclaim your money. Since trusts for grandchildren are legal structures, you should work with a lawyer to create them.
Choosing a trustee also will require thought. The trustee should be someone you trust. In some cases, it might be advisable to choose an objective third party to serve as a trustee.
An individual trustee might be a better option if the trust asset necessitates specialized knowledge. A corporate trustee may be a better choice when you don’t have someone who is able to effectively manage the trust and to make difficult decisions about when the distributions should be made.
Pick the right type of trust
After you have decided to create a trust, you will have two choices. You can create a family pot trust for all of your grandchildren, which can be beneficial if you have a large family and want the trustee to have some discretion. With this type of trust, the trustee can determine how much money to distribute to your grandchildren for their ongoing needs. A family pot trust can also be created to leave multiple generations of your family with a continuing financial legacy. You can instead choose to create individual trusts for each of your grandchildren. This might be advantageous if you plan to leave money to just a few grandchildren.
Provide instructions and establish stipulations
Establishing a trust for your grandchild allows you to include specific instructions in the language of the document. These can help you to maintain some control over how your grandchild can use the money.
For example, you might set up a trust that pays out certain percentages when your grandchild reaches different ages instead of all at once. You can also include instructions for the trustee to approve distributions to help your grandchild buy a first home, pay for college, or to meet other goals.
Talk to your family
Talk to your family about the stipulations for the trust. It is important to talk to a grandchild’s parents before you set up a financial gift. You might also want to talk to the parents about whether to tell your grandchild about the trust that you are creating for him or her. Many experts recommend that people talk opening to children about inheritances because doing so can give your family more time to educate them about money management.
Talk to Elder Care Direction
The professionals at Elder Care Direction are focused on helping older adults and their family members to prepare for the needs associated with the golden years. To learn more, fill out our online contact form to schedule a consultation.