While much is commonly known about how to set up your wills and trusts in order to provide for your children after you have passed away, setting up the proper accounts and trusts to leave money to your grandchildren is a more complex affair. The following information will help you engage in good financial planning and will protect your grandchildren’s inheritance rights – and are especially useful if you are concerned that your own children will spend the money in ways that you did not intend, and that do not benefit the next generation of your family.

Tips for Leaving Money to Your Grandchildren:

1. Create a custodial account. A custodial account holds the money that you earmark for your grandchildren until they reach a certain age. With a custodial account, your grandchildren will have access to their inheritance when they reach the age of 18. These types of distributions are handled under the Uniform Transfers to Minors Act (UTMA) and are easy to create with the help of an estate planning attorney.

2. Create a minor’s trust. A minor’s trust allows the trust to control your money even after the grandchildren are older than 18. With a minor’s trust, you control when the individual receives their inheritance, regardless of age. In addition, an attorney can help draft a trust that distributes certain amounts of the inheritance at certain times (at the age of 20, 30, etc.), and even for certain reasons (such as college, a wedding, etc.)

3. Buy savings Bonds. At any time during your life, you may purchase United States Savings Bonds in the name of your grandchildren. These popular bonds are purchased for approximately half of their face value and no taxes need to be paid on them until the bonds are cashed in. The bonds should be placed in the name of the grandchild so that nobody else can cash them in.

4. Do not make a direct cash gift. While cash gifts or distributions in a will may seem like the simplest solution to giving grandchildren money, the process is rife with potential pitfalls. With a direct cash gift, there is no way to protect the money – and your children could use the money themselves while the grandchildren are still minors. Also, there are more serious tax consequences involved when making a direct gift of cash. The result can be a financial burden on future generations.

5. Create an educational savings plan. There are several tax-friendly accounts that individuals can use to save money for their children and grandchildren’s education. 529 Savings Plans and Educational-focused IRA accounts both provide low-tax or tax-free ways to provide for college. These are outstanding choices when you ONLY want the inheritance money to be used for the grandchild’s higher education.

Taking the time to hire a lawyer and plan for your grandchildren’s future is one of the smartest estate planning moves that an individual can make. Financial futures look much brighter for your grandchildren when you take the time to follow one or more of the helpful tips above.

This entry was posted on Wednesday, October 1st, 2008 at 4:08 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.