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New grandchild? Here are some ways to provide for them

When you have your first grandchild, it can be an amazing feeling. It can also make you realize just how old you’ve gotten and how important it is to provide for the family you have and love.

As you review your estate plan following your grandchild’s birth, one thing you may want to look into is setting up a trust for them. If your grandchild is going to be your beneficiary, then having a trust may be a good idea. There is a chance that your grandchild may not yet be 18 by the time you pass away, and there are some special situations to consider when deciding what to leave behind for them (and how to do so).

Did you know that grandchildren may be subject to the generation skipping transfer tax?

This is a tax that is placed on items grandchildren receive, and it’s on top of any gift or estate taxes that also have to be paid.

What’s a good way to reduce the value of your estate while supporting your grandchild’s future education?

One good idea is to look into a 529 plan. The 529 plan is a state- or state-agency-sponsored plan that helps grow college savings. The account is flexible and is tax-deferred, which is a great way to reduce taxation while, at the same time, reducing the value of your estate. Do keep in mind that this kind of account generally stays in your possession until the money is withdrawn or death, whichever comes first, and it is then transferred to your grandchild.

Should you tell your grandchild if you intend to leave behind assets for them?

If you plan to leave behind assets for your grandchild, then it’s a smart idea to let someone know that you have that intention. Whether you tell them directly, let their parents know or tell another guardian, it’s a good choice to keep at least someone in the family up-to-date on the investments, bank accounts or other transfer-on-death designations that you have in place.

Is a trust better than a college savings plan?

A trust is different than a college savings plan, and there is no reason that you can’t create both. Trusts can be a great way to transfer money or assets other than college tuition, so you may want to consider creating both to protect your grandchild’s inheritance. Your attorney can help you choose the right kind of trust when you review your estate plan.

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