If you have grandchildren, you likely want them to succeed and might provide some of your savings to make it happen. However, leaving a legacy is not always straightforward. While you might be tempted to gift your grandchild cash, an investment account, or even a home, you might find your hard-earned assets endangered by unexpected life events. California Estate Planning Lawyer Kavesh Minor & Otis

Why Outright Gifts Can Be Problematic

Almost everybody knows the importance of having a will. Without this foundational estate planning document, your assets could be subject to California’s intestate succession laws, which essentially leave your legacy at the mercy of a state court.

While a will cannot help you or your loved ones avoid probate, it provides a convenient way to disburse inheritances. However, the convenience of a will can be overridden by other factors.

Factors That Could Override a Will

Age

If a grandparent passes away before the beneficiary child reaches the age of majority, that child may be unable to receive certain kinds of assets, including real properties and even cash accounts. Your estate executor, or trustee, may be forced to set up custodial accounts to disburse the inheritance. In most cases, the costs associated are borne by the estate.

Maturity

Grandchildren, no matter their age, do not always have the maturity and foresight to responsibly invest and save valuable gifts. A young or fiscally irresponsible grandchild could quickly squander an inheritance.

Unexpected life events

Leaving your grandchild a large cash gift, investment account, or home can be transformative. However, unexpected life events—including a later marriage or divorce—could threaten both the stability and longevity of your intended legacy.

Taxation

Any significant intergenerational wealth transfer could be subject to federal estate and wealth taxes, leaving your grandchild with a substantially smaller inheritance than you had intended.

Probate

A will or other rudimentary estate plan allows you to disburse assets to selected heirs. However, wills do not override or negate the need for probate, the costly and time-consuming process of closing an estate.

Better Alternatives to Outright Gifts

Gifting assets through a will could be a convenient and painless way to establish a legacy. However, will-based gifts have a downside, especially if you intend on transferring valuable assets, whether they be cash, stocks, or holdings. While you should always speak to an estate planning lawyer before finalizing the terms of your estate plan, you could consider alternatives to outright gifts.

Alternatives to Giving Outright Gifts

Educational savings plans

If your intent is helping a grandchild afford the high and ever-rising costs of a college education, you could provide an educational savings plan. While there are several varieties of these plans, many grandparents establish tax-favored college accounts—sometimes called 529 plans—along with educational IRAs.

A revocable living trust

This type of trust allows you to retain the right to use any assets transferred to the trust while you are still alive. Trusts have many advantages compared to traditional wills. You could, for instance, set conditions on an inheritance, ensuring that a grandchild only uses their inheritance once they reach a certain age or for certain expenses. Additionally, any assets held by a trust are not subject to probate.

A dynasty trust

Sometimes called a “legacy trust,” this type of trust affords you continued access to your wealth. However, unlike revocable living trusts, dynasty trusts are intended for long-term, multigenerational use and may remain valid for up to 90 years. Dynasty trusts also provide additional asset protection—a beneficiary’s creditors or former spouse cannot pursue the trust’s assets or the heir’s share.

Speak to an Estate Planning Attorney

Many grandparents want to help their grandchildren move forward in life. However, establishing a concrete legacy can be difficult if you do not account for federal taxation and unexpected life events. The Law Firm of Kavesh, Minor & Otis, Inc. has decades of experience helping California families identify and implement estate plans that work for them—plans that account for your family’s ambitions and deeply-held values. We could help you explore your best options for a comprehensive estate plan. 

Do You Need To Speak With An Attorney About Estate Planning?

If you need to speak with an experienced estate planning lawyer please contact us online or call us directly at 800.756.5596 to first register for one of our free, informative seminars. Your attendance will qualify you for a special discount for our estate planning services should you decide to make a free appointment at the conclusion of the seminar and choose to proceed with us. We proudly serve clients throughout California with offices in Torrance, Newport Beach, Orange, Woodland Hills and Pasadena.

 

Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.