The estate planning process can give a lot of joy since it gives you the ability to leave assets to your loved ones, helping them build the lives that you want for them. In some instances, you can even see your loved ones enjoy those assets while you’re still around.
In most instances, this transfer of wealth flows from you to your children, and any of the inheritance left over after your children pass away goes to your grandchildren. But that process can take a long time to play out, which could put your grandchildren and great-grandchildren at risk of inheriting little to nothing from you.
If that’s something that you’ve been thinking about, don’t worry. There are estate planning strategies that you can utilize to leave assets to your grandchildren while still providing for your children.
Estate planning options for leaving assets to your grandchildren
There are several estate planning options at your disposal. Here are some that may be especially effective if you want to leave some of your wealth to your grandchildren:
- Give gifts during your lifetime: The IRS allows you to give up to $18,000 per year per person before triggering a gift tax. This can be an effective way to pass down wealth to your grandchildren while retaining the ability to see them enjoy it. The tax exemption can make this from of wealth transfer especially appealing. It also removes assets from your estate, thereby reducing the risk of being subjected to the estate tax.
- Create an incentive trust: We talk about these quite a bit, but they can be an effective way to pass down an inheritance while motivating your grandchild to do something meaningful with their life. You can be creative here, triggering the release of trust assets on the completion of a goal such as graduating from college, getting married, having a child, or even completing a financial literacy course. With this trust, you can also restrict when your grandchild will receive their inheritance so that they don’t get their hands on it when they’re young and incapable of managing a large sum.
- Utilize a generation-skipping trust: This trust leaves assets directly to your grandchildren, thereby reducing the size of your estate and the estate of your children, which could protect your grandchildren from a smaller inheritance that’s been eaten away by the estate tax.
- Invest in a 529 plan: While this investment is meant to help pay for someone’s education, the contributions can also be rolled over into a Roth IRA. This could give your grandchildren strong financial stability as they age. It can also reduce the size of your estate over time while giving you some control over how your grandchildren can use the funds you leave for them.
Develop the comprehensive estate plan that works for you and your grandchildren
There are other estate planning options out there that you can utilize when wanting to support your grandchildren. So, make sure you inform yourself of them so that you can choose those that are most beneficial for you and your family. Hopefully, then you can rest easy knowing that you have a sound estate plan in place to protect those you care about most and the future that you hope to bring into reality.
