The bond between grandparents and grandchildren is often remarkable. Many older clients tell us what a joy it is to be retired and have free time to spend with their grandchildren. The tantrums, spilled milk, and cookie crumbs seem like minutia after a lifetime of experience.
August 21st is National Senior Citizens Day; first declared a holiday by Ronald Reagan in 1988. The day was created to show the older generations our appreciation and recognition of their accomplishments. As people accrue wealth, there is a natural desire to pass that financial stability onto children and grandchildren. However, that strong bond with grandchildren can turn into a weakness if proper precautions are not set in place. This leaves many older citizens wondering what is the best way to leave behind assets to their loved ones, especially their grandchildren? In honor of National Senior Citizens Day, we want to give grandparents 5 tips on how to properly leave assets behind to your grandkids, be it through a Last Will and Testament (“Will”) or a Revocable Trust.
1. Minor Children Inheriting Assets
Grandparents have no way of knowing how old their grandchildren will be when they pass on. If the grandchildren are under 18 years of age, they are considered minors under Florida Law and Florida law states that children cannot inherit more than $15,000 directly. Although you can technically list your children as your beneficiaries in your Will, your Trust, or on your bank accounts, they won’t see that money until they are adults and must jump through the arduous and expensive guardianship process to get it. Here is why.
If a minor child, (under 18 years of age in Florida), is entitled to receive an inheritance, Florida law governs how this inheritance will be managed until the child turns 18. This is through a court process called “guardianship.” Inheritance includes real estate, proceeds in a bank account, life insurance proceeds, stocks, CDs, cash in a safety deposit box/vault, or any other investments. When a child is set to inherit anything in excess of $15,000, a court must appoint a legal guardian to manage the minor child’s inheritance and to safeguard the minor’s interests. Note that although a child’s parents are “natural guardians,” the court must still appoint them as the “legal guardians.” The process takes time, involves court expenses, and requires an attorney. All these fees usually come out of the inheritance.
How to avoid this pitfall: Create a long-term Revocable trust for your grandchildren that provides continued management of assets regardless of their age when you pass away. In the Trust you will list a “Trustee” to manage the money until the child becomes an adult or until whatever age you choose. A Trustee can be anyone you Trust – such as the grandchild’s parents, other family member, or close friend. Creating a Trust must be done through an estate planning attorney.
2. Too much, too soon.
Even if your grandkids are legally old enough to receive an inheritance when you pass on, if they have not learned enough about handling large sums of money properly, the inheritance could still be quickly squandered. Think about yourself in your younger years. Many of us would have likely made foolish decisions on how to spend that inheritance. Sometimes “foolish decisions” can be made inadvertently and leave the inheritance exposed to creditors such as credit card bills, student loan debt, divorces, etc. There is a wonderful concept called a “Spendthrift Provision” which can be added to your Trust to ensure that your grandchild’s inheritance is protected from potential future creditors.
How to avoid this pitfall: Outright or lump-sum distributions to your grandchildren are usually not advisable. Luckily, there are many options available, such as staggered distributions at different ages. Again, this requires creating a Revocable Trust. Only an experienced estate planning attorney can help you spot all the pitfalls and explain the concept of the Spendthrift Provision.
3. Not Communicating How You Would Like Them to Use the Inheritance
You might trust your grandchildren implicitly to handle their inheritance, but if you have specific intentions for what you want that inheritance to do for them (for ex., put them through college, buy them a house, help them start a business, or something else entirely), you can’t expect it to happen if you don’t communicate it to them in your Last will and Testament (“Will”) or Trust.
How to avoid this pitfall: Stipulate specific things or activities that the money should be used for and when it can be accessed in your estate plan. Clarify your intentions and wishes so there is no room for error.
4. Being Ambiguous in your Language
Money can make people act in unusual ways. If there is any ambiguity in your Will or Trust as to how much you are leaving each grandchild, and in what capacity, the door could be opened for greedy relatives to contest your plan. Sometimes greed is not even about money, but rather, about sentimental items. For example, every granddaughter might want grandma’s wedding dress, antique ring, or paintings they grew up with. By leaving the decision to someone else, you may be inadvertently leaving room for family strife.
How to avoid this pitfall: Be crystal clear in every detail concerning your grandchildren’s inheritance. This includes any wishes regarding money, specific financial accounts, cars, jewelry, and other sentimental items. An experienced estate planning attorney can help you clarify any ambiguous points in your Will or Trust.
5. Touching your Retirement
Many misguided grandparents make the mistake of forfeiting some or all of their retirement money to the kids or grandkids, especially when a family member is going through some sort of financial crisis. Trying to get the money back when you need might be difficult to impossible.
How to avoid this pitfall: Resist the temptation to jeopardize your future by trying to “fix it” for your grandchildren. If you want to help them now, consider giving them part of their inheritance in advance, or setting up a Trust for them. But, always make sure any lifetime giving you make does not negatively impact you. An example of this would be gifting money away and then being ineligible to receive government benefits such as Medicaid. Any monetary gifting should only be done under the guidance of an elder law attorney.
If you plan to put your grandchildren in your Will or your Trust, we are here to help with every detail and provide peace of mind for generations to come. Our law firm can conduct all consultations over the phone and facilitate concierge signing right from your home. We speak English, Spanish, and Russian. Contact OC Estate and Elder Law at (954) 251-0332 or firstname.lastname@example.org to receive a free consultation today.