Transferring Assets to Grandchildren

Posted: Updated:

Planning the transfer of assets to grandchildren is in many ways similar to transferring assets to your own children, with a few exceptions. Grandchildren may be subject to a generation skipping transfer tax, which is levied in addition to the estate and gift tax. In 2017, transfers to grandchildren in excess of the lifetime generation-skipping transfer exemption, $5.49 million, will be taxed at the highest gift tax rate of 40 percent.

It is important to determine the ways in which you wish to assist your grandchildren financially. Is it education? Placing assets into a 529 savings plan, Uniform Gift to Minors Act or Uniform Transfer to Minors Act account is a strategic way to reduce the value of your estate while at the same time achieving your education goals. If you already have a 529 account, it is important to review your successor designation, which stipulates who will take over management of the account should you pass away.  You will also want to be sure your beneficiary designations are up-to-date.

A trust can also be an effective way if transferring assets to adult grandchildren, while also reducing your estate tax and maintaining your influence on the assets even after you have passed away. A simple revocable or irrevocable trust may suit your needs, or you may want to consider one of an array of potential trusts with specific benefits to grandkids (generation-skipping trusts, credit shelter trusts, irrevocable life insurance trust, etc.)

Trusts can be especially useful when transferring to minor grandchildren, as you are able to maintain control over the assets, even after your death. By setting up a trust for you minor grandchildren, you can state how you want the money to be managed, the circumstances under which it can be distributed, and when it should be withheld. You can also determine at what age the grandchildren will able to control the money, either as trustees or full owners.

As much as we like to believe our grandchildren are financially responsible, knowledge of a significant inheritance could make it easier for them to justify leading a somewhat indolent lifestyle, lacking direction and a sense of financial stewardship.  Your grandchild’s trust can be an effective tool for providing financial assistance, as well as motivation by way of incentives. For example, a will or trust may stipulate that receipt of funds be contingent upon graduating college, retaining a good-paying job or maintaining a healthy lifestyle.

For grandchildren or any other beneficiary who may be physically or mentally unable to care for themselves as an adult, you may want to ensure they have the care oversight they need for their lifetime. A special needs trust is one effective way of planning for such a situation.  It is important that you work closely with a financial advisor and/or estate attorney when establishing a special needs trust, as the smallest misguidance could jeopardize the beneficiary’s eligibility for government programs, such as supplemental security income and Medicaid.

In summary, there are multiple ways of transferring wealth to subsequent generations.  No one strategy is right for everyone.  It is a matter of identifying what your goals and objectives are and then working with an experienced advisor who will help create and implement a plan for achieving them.

Brian Rykovich, CFP, is a Wealth Manager with C.H. Douglas & Gray Wealth Management, a wealth management firm located in Indianapolis.

  • Perspectives

    • Expand Your Workforce to Include The Deaf Community

      While there are arguably many minority groups that are grossly underutilized in the workforce, I’d wager that most people do not consider the Deaf community when thinking about diversity and inclusion strategies. The Deaf community shares a unique culture that is closely networked, but few employers know how to tap into this community, which comprises 10 percent of the population. In fact, many people probably see barriers for the Deaf community when it comes to employment...

    More

Subscribe

Name:
Company Name:
Email:
Confirm Email:
HTML
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections
INPower
Subscribe
Unsubscribe

Events



  • Most Popular Stories

    • Indiana Lands $21M in Opioid Treatment Funding

      The U.S. Department of Health and Human Services has awarded more than $18 million to the Indiana Family and Social Services Administration. The two-year grant will be used for opioid treatment services throughout the state.

    • The Union Club Hotel was built in 1929. (photo courtesy of Purdue University)

      $30M Gift to Fund Purdue Hotel Renovation

      Purdue University says it plans to use a $30 million gift to transform an existing building into a world-class hotel. The gift from Bruce White, a Purdue alumnus and former trustee, his wife Beth, and the Dean and Barbara White Foundation, will fund the renovation of the Union Club Hotel, which will also serve as a laboratory learning environment for students. The university says the renovations will feature upgrades in furnishings, fixtures, and amenities for the hotel, as well as a...
    • MainSource to Acquire Kentucky Bank

      Greensburg-based MainSource Financial Group Inc. (Nasdaq: MSFG) has announced plans to acquire Louisville-based FCB Bancorp Inc., the parent of The First Capital Bank of Kentucky. The nearly $57 million cash and stock deal is expected to be complete by the second quarter of 2017.

    • MainSource Completes FCB Acquisition

      Greensburg-based MainSource Financial Group Inc. (Nasdaq: MSFG) has completed its nearly $60 million acquisition of Louisville-based FCB Bancorp Inc. The bank says it plans to fully integrate all First Capital Bank of Kentucky branches into MainSource Bank locations later in the second quarter.

    • Cottongim Joins Taft’s Municipal And Legislative Team

      Taft Stettinius & Hollister LLP has added Ann Cottongim as director of municipal and legislative relations. In this role, she will direct the firm's objectives involving local and state government affairs by maintaining and nurturing relationships with municipal, county and state officials. She previously served as deputy director and CFO of Aim (Accelerate Indiana Municipalities, formerly known as Indiana Association of Cities and Towns (IACT)).