Part of the joy of estate planning is financially providing for your loved ones. But to do so effectively, you have to know how to use legal documents to achieve your goals. That can get complicated depending on what you want out of your estate plan, but don’t let that daunt you into inaction. Instead, take the time you need to discover your options and how you can use them to your advantage.
How can you provide for your grandchildren in your estate plan?
Although you can leave your estate to your children with the expectation that they’ll leave some of those assets to their own children, this isn’t your only option when it comes to providing for your grandchildren. Here are some of your other options:
- Give monetary gifts during your lifetime: The IRS allows you to give thousands of dollars each year to individuals tax-free. For a lot of people, this has multiple advantages, including reduction of their income for Medicaid planning purposes and the provision of direct financial support to children and grandchildren. This money then bypasses the probate process, and you get to see your grandchildren enjoy the money you’ve given them.
- Fund a 529 plan: This investment account can help cover your grandchildren’s educational expenses, allowing you to contribute more than $80,000 per year per account. And you don’t have to open your own 529 account, as you can contribute money to an already existing one.
- Utilize an incentive trust: This type of trust allows you to condition the release of assets on an identified condition. This motivates your grandchild to make positive decisions in life and attain certain specified life goals. You can be creative here, conditioning the release of trust assets on things like graduation from college, marriage, holding a full-time job for a certain period of time, and completing substance abuse treatment.
- Give assets directly to your grandchildren through your will: You don’t have to use a trust to provide for your grandchildren. If you want, you can utilize your will to specify exactly what they’ll inherit. Just remember that you’ll need to update your will periodically so that it reflects your wishes at your time of passing.
- Use a dynasty trust to ensure that your wealth supports multiple generations: Illinois has extended its rule against perpetuities, which allows you to utilize one of these trusts to stretch your familial wealth over multiple generations. Here, principle remains in the trust while providing a steady revenue stream to named beneficiaries. Some of the major benefits here is that you can avoid estate taxes and the reach of many creditors when you utilize this type of trust to pass down wealth.
- Utilize a remainder trust: This type of trust allows you to support one individual for their lifetime with any remaining assets being directed to your grandchild. This is a good option if you want to ensure that you’re supporting both your children and your grandchildren.
Know how to use the estate planning process to your advantage
Regardless of what you want out of your estate plan, there’s a way to achieve your goal. You simply have to know the tools you have at your fingertips and how to effectively use them. Fortunately, you can read up on those options we mentioned above and seek out answers to any other questions you might have.
Hopefully then you can confidently and comfortably move forward with the process, knowing that you’ll be able to provide your loved ones with the support you want them to have.