Grandchildren and Estate Planning

By Libby Banks, The Law Office of Libby Banks

I had to figure out how to connect grandchildren and estate planning just so I could announce: I had my first grandchild in December! My beautiful granddaughter and her gorgeous mother are healthy and doing well. Any of you who are grandparents know just how exciting and awe-inspiring this event is, and how you will do anything to create the opportunity to brag about your grandchild and show pictures.

Seriously, though, I do get questions about estate planning from clients who have just had a grandchild about whether their plan will need an update. For some, a grandchild is the motivation to do an estate plan for the first time.

When I prepare an estate plan in my office and draft the language concerning the distribution of your assets, I include grandchildren – even if you don’t have any yet. The way we word the distribution to your children is to give your estate to your “descendants, per stirpes.” That legal language “per stirpes” is how we include the later generations. What it means is that if a child of yours predeceases you, that child’s children will receive his or her share. It also means that if a grandchild predeceases you, his or her children (your great grandchildren) inherit their share, and so on down the line. It’s a short little phrase that’s action-packed! When you have a grandchild and you are concerned about what provisions are made for them, this is the first item you would review in your Will or Trust.

Some grandparents want to give specific gifts to their grandchildren in their estate plan. One question I had recently was whether my client would have to come in and amend his trust every single time he had a new grandchild in order to leave gifts to them. Not at all! If you know you want to leave a specific amount or type of gift to each grandchild, we can simply provide for a gift to “all my grandchildren living at my death.” It’s a straightforward way to be sure we’ve included everyone, even those who may come later in life.

Another consideration when you have multiple generations who could inherit from you is how to distribute the estate to them. Distributing your assets outright to an adult child may be a good plan (or might not be, but that’s another article), but giving them outright to a minor child is not. If you leave a large sum directly to a minor, the court will control the inheritance. The court proceeding for this is called a conservatorship. Filing this proceeding usually requires an attorney. Reports to the court are required on a regular basis, and some expenses must be approved by the court ahead of time. The proceeding is expensive and time-consuming, and a lot of the money you left can be eaten up with attorney’s fees and accounting costs.

Another problem with leaving money directly to a child is that when the child reaches age 18, the court and the conservator are required to turn over the entire remaining inheritance to the child in one lump sum. If that sum is substantial, will that 18-year-old be wise enough or have enough experience to handle the money properly and use it the way you would want? Probably not. We’ve seen cases when some lives have nearly been ruined by receiving a large chunk of money at too early an age. We all know stories of people who ended up with nothing after getting a big inheritance because they didn’t know how to manage it. Even if no one who would currently inherit from you is under 18, your plan should include provisions for such a circumstance anyway. That way, if things change (and life always brings change), your estate plan is already prepared to deal with such a situation.

Although all my children are in good health and my granddaughter is too, I have included in my plan a contingency for any heir who has special needs. This is that “just in case” plan that would hold benefits in a special or supplemental needs trust for a beneficiary who is receiving government assistance such as Medicaid. The last thing you want is for your well-intentioned gift of cash to disrupt the hard-fought and much-needed benefits of a special needs grandchild. My plan includes this, and yours should too.

If you want to be sure your grandchildren are included in your estate plan, I’d love to help you. I’d also love to see pictures of your grandchildren and show you mine! Give me a call at 602-375-6752, email me at Libby@libbybanks.com, or schedule an appointment on my website, www.libbybanks.com.