As wealth is accumulated, there is a natural desire to pass that financial stability to your family. With the grandkids, especially, there is often a special bond that makes people want to provide well for the grandkids’ future. However, that bond can actually turn into a weakness if proper precautions aren’t set in place. If you’re planning to include the grandchildren in your will or trust, here are six potential dangers to watch for, and ways you can avoid them.
1. Not including an age stipulation.
We have no idea how old the grandchildren will be when we pass on. If they are under 18, or if they are financially immature when you die, they could receive a large inheritance before they know how to handle it, and it could be easily wasted.
Avoid this pitfall: Create a long-term trust for your grandchildren that provides continued management of assets regardless of their age when you pass away.
2. Too much, too soon.
Even if your grandkids are legally old enough to receive an inheritance when you pass on, if they haven’t learned enough about handling large sums of money properly, the inheritance could still be squandered rapidly.
Avoid this pitfall: Outright or lump-sum distributions are generally not advisable. Luckily, there are many options available, from staggered distributions to leaving their inheritance in a lifetime, “beneficiary-controlled” trust. An experienced estate planning attorney can help you decide the best way to leave your assets.
3. Failing to communicate how you would like them to use the inheritance.
You might trust your grandchildren completely to handle their inheritance, but if you have specific intentions for what you want that inheritance to do for them (e.g., 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 will or trust.
Avoid this pitfall: Stipulate specific things or activities that the money should be used for in your estate plan. Clarify your intentions and wishes.
4. Being ambiguous in your language.
Money can make people act in strange ways. If there is any ambiguity in your will or trust as to how much you’re leaving each grandchild, and in what capacity, the door could be opened for greedy relatives to contest your plan.
Avoid this pitfall: Be abundantly clear in every detail concerning your grandchildren’s inheritance. An experienced estate planning attorney can help you clarify any ambiguous points in your will or trust.
5. Using 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 it might be difficult or impossible.
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 doesn’t leave you high and dry. Also, advancements can, and often should, be accounted for in your estate planning. If you give assets during your life to one grandchild but not another, and you fail to account for it in your plan, the grandchild who did not receive a lifetime gift may contest your plan. Again, speaking with an experienced estate planning attorney can help you navigate these treacherous waters.
6. Failing to Protect Your Children’s Inheritance from Divorce and Other Creditors.
Often times, grandparents hope that the inheritance left to their children will trickle down to the grandkids. In our society, where divorce is commonplace, all too often inheritances are lost to divorce settlements because beneficiaries commingle their inheritance with “marital” assets. It is also not uncommon for inheritances to be lost to that beneficiary’s creditors or judgments.
Avoid this pitfall: An experienced estate planning attorney can devise strategies to protect your beneficiaries’ inheritance from divorce, creditors, bankruptcy, and other law suits and judgments by using spendthrift clauses and other provisions in trusts set up for your children. Doing so will result in a higher probability that your assets trickle down to the grandchildren eventually.
If you’re planning to put your grandchildren in your will or trust, we’re here to help with every detail you need to consider. Contact us to explore your options and protect your family.
Zach Wiegand is a Burnsville, Minnesota estate planning attorney who also handles probate in Dakota County and other counties in the greater Twin-Cities area. Zach is the owner of Gold Leaf Estate Planning, LLC, which is a Minnesota estate planning law firm that handles probate and trust administration in Minnesota. Zach was named a 2017 Minnesota Super Lawyer – Rising Star and he is a member of WealthCounsel – a national organization of estate planning attorneys dedicated to practice excellence. You can contact Zach via e-mail at firstname.lastname@example.org or by calling (952) 658-6503. Gold Leaf Estate Planning is located in Burnsville at 3000 County Road 42 W., Suite 310, Burnsville, MN 55337.