Estate Planning: Help Plan for Your Grandkids’ Futures

Jim Gianelli
By Jim Gianelli September 15, 2015 16:12

IMG_3092-jim-full-view-w-babyThis summer I joined the ever-growing ranks of boomers who have become grandparents. Welcome to the world, Violet Rose. And we’re keeping the welcome mat out, as the ultrasound shows a grandson on the way for our other son and daughter-in-law.

So far it has been all that my grandchild-endowed friends have said it would be ‒ pure magic! So when FAN’s editor asked if I’d write about estate planning for grandchildren, of course I agreed.

As a grandparent, you can kick-start the estate and financial planning process for your children either by prodding, providing financial assistance or both. Issues to consider:

Appointing a guardian

My first thought as a new grandfather was instinctual: Who will care for this precious little one if something happens to both her mom and dad?

New parents should give this serious thought, then draft a will appointing a guardian for their children. This is the person Violet Rose would live with until she becomes an adult (18 in California) in the event of the unthinkable, unexpected death of both parents. And don’t just stick that will in a drawer – it might never be found. Instead, put it in a bank safe deposit box, and let the executors you appoint know where it is.

The choice of a guardian should be made with the following concerns in mind:

  • Who would raise the child in a way that best fits the beliefs and values of the parents?
  • Does the potential guardian live near or far from the rest of the child’s family?
  • Will that guardian make sure both sides of the family are able to have contact with the child?

Choose someone who is reliable, steadfast and without serious character flaws or divided loyalties. It is not easy to change a guardian once appointed, which is why this decision is so important for young parents.

All this said, don’t tell your son or daughter who you’d consider the best guardian for their  children. It’s not your business. A grandparent can bring up the topics addressed in this column and even offer to cover, via a Christmas gift perhaps, the cost of estate planning. But then swiftly and quietly back away.

Choosing a trustee

A closely related topic is choosing a trustee to manage finances for the surviving grandchildren until they reach a mature age (say, 25). The trustee determines how much money is spent on health, education, housing and other living expenses of the minor children.

Again, choose a reliable person, one unlikely to be tempted by access to cash. Until your grandchildren become adults, they cannot contest financial decisions made by the trustee. Once they are 18, they have the right to be kept informed as to the money left to them and the trustee must provide, on request, a detailed account of financial decisions. Once the child reaches the mature age you designate, funds are turned over. Until then, the trustee handles investments and distributions.

So should your guardian and trustee be the same person?

Not necessarily. The choice of a sibling or parent for both jobs is sometimes abundantly clear to both husband and wife. If there is doubt, however, it is a good practice for check-and-balance reasons to appoint different people to the guardian and trustee jobs.

But make sure they are compatible. These two will be working closely together in raising the children and should share the same values. But thanks to technological advances in handling finances from a distance, the trustee need not live close to the child. A trustee can be designated in the parents’ will or revocable trust.

Life insurance

Providing for a guardian and a trustee is all well and good, but what if the young parents of your new grandchild have only modest assets? Would they really think about saddling relatives or friends with the responsibility of raising their children without providing funds for this awesome undertaking?

This is where life insurance comes in. Cheap term insurance for a limited period is very inexpensive for most young parents, especially if they are healthy and do not smoke. They can always dump the policies when the kids are through school, but until then the cash benefits can be crucial in funding the trust discussed above. Each spouse should take out a policy for at least $100,000, but I recommend $250,000, as today’s education costs are staggering and likely to rise.

Make sure, however, that the spouses are each other’s primary beneficiaries and that the trust – not the children directly – is the secondary beneficiary. Listing the children alone means they would get the insurance proceeds at age 18, usually not a good idea (think how you might have handled such a payout at that age).

Grandparents can help by funding their children’s life-insurance program until they can afford it. The earlier a policy is purchased the better, as insurance is cheaper for the young.

Retirement plan designations

The new parents should re-examine beneficiary designations of their retirement plans (401Ks, IRAs, 457 plans, etc.) They should then talk to an estate and financial planner about allowing the retirement plan recipients – your grandchildren – to take out the so-called Inherited IRA. If designations are done correctly, beneficiaries can defer income taxes on such an IRA over their life expectancies instead of paying the entire tax bill on inheriting the account.

As I mentioned earlier, planning for and helping fund your grandchildren’s college education, as remote as that might seem today, is a key area where grandparents can help. There are many ways we can help, including educational savings accounts and 529 plans, and these will be the subject of a future column.

Meanwhile, here’s to happy and legally trouble-free grandparenting.

Jim Gianelli is a founding partner in Gianelli & Polley, a Sonora law firm.

Copyright © 2015 Friends and Neighbors Magazine

Jim Gianelli
By Jim Gianelli September 15, 2015 16:12
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