Attorney
What steps do I need to take to leave an inheritance to my grandchild?
Many grandparents wish to leave their grandchildren with financial or property gifts upon their death. Leaving an inheritance to your grandchildren can be a wonderful way to continue your legacy, but it will require some thoughtful estate planning to minimize your taxes and ensure the funds end up in the right hands. While there are several ways to gift funds to your grandchildren, setting up a trust provides the most protection and flexibility.
Grandchild Trusts
There are several notable benefits to setting up a trust for your grandchildren, as opposed to transferring assets while you are living. First, trusts offer tax benefits. With a trust, you can reduce the size of your estate by transferring up to $14,000 (2017) annually into each trust you create for each grandchild. You will not be taxed on this amount. Further, if you wish to gift additional funds, you can do so by filing a federal Gift Tax Return. At the time of your death, funds or property in the trust will avoid probate and the considerable taxation that comes with it.
Next, using a trust, you can set important terms that provide you with a degree of control over how the funds will be used. You can set a certain age at which your grandchild can access the funds and place limits on how much can be accessed annually. You can even mandate that trust assets only be used for a certain purpose, such as to pay for higher education. Trusts can terminate when the grandchild turns a certain age or continue for
College Savings Plans and More
If you wish to leave your grandchild a smaller sum of cash, under $50,000, you also have the option of setting up a College Education Savings Plan (529 Plan) or a California Uniform Transfers to Minors Act (CUTMA) account. A 529 Plan is specifically used to finance a named child’s education and funds placed in it will not usually be taxed. Using a CUTMA account, funds will pass to the named grandchild, but you will need to specify a trusted adult to manage the account. Contact our California estate planning attorneys for individualized assistance with your estate plan.