I’ve heard it said that being a grandparent can be an exceptional gig. If you are fortunate enough to be a grandparent, you understand the joy a grandchild brings into your life. Becoming a grandparent is one of the events that the professionals of Clarity Legal Group identify as a life change which should prompt a review of you estate plan. When we do planning for people with children, with commonly built into the documents provisions to provide for and protect hypothetical but as yet unborn grandchildren. When those grandchildren become real, this may also prompt you to make add some specifics for how you wish to provide for them in your plan.
Providing for grandchildren almost always means using a trust for the grandchildren, which can be an occasion to upgrade your own plan. For lifetime gifts you might make to the grandchildren you will want to use a free-standing irrevocable gift trust. This trust might provide for your children and grandchildren, or only the grandchildren. For my clients who are grandparents hoping to make gifts to the grandchildren only upon their own deaths, I encourage them to use a living trust, which will provide benefits for the clients during their lives but also be the document through which the trusts for the grandchildren are established.
Is a Last Will and Testament Enough?
If your planning now only includes a Last Will and Testament rather than a Will and Living Trust, you have in that Will an instrument which can effectively distribute your entire estate after your death but may not meet all of your estate planning goals. This is definitely the case if you wish to include your young grandchildren in your estate plan because a minor child cannot legally inherit an outright gift from your estate. Rather than establish a court supervised guardianship, the use of a trust is the best solution (unless the gift is very small). As I mentioned, the best place — and in my opinion the only reasonable place — for the trust(s) for grandchildren to be established is as a sub-trust under the revocable Living Trust. In addition to creating the trusts for grandchildren, this provides an outstanding management tool for your financial affairs which will facilitate the appropriate management of your assets by a person of your choice in the event of your incapacity and also allow for the centralized management of your estate, outside of the control and supervision of the courts, at your death.
How Does a Living Trust Work?
A Living Trust is a revocable trust created while you are alive that becomes irrevocable (meaning the rules and provisions cannot be changed) upon your death. It is a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. You get to decide who is the Trustee of any trust you create. Among the many benefits of a Living Trust is that it is a private document typically not made part of any public record and managed privately by the Trustee. This reason alone is enough to make it the location of preference for documenting a trust for your grandchildren.
Other benefits of a Trust for Grandchildren
In addition to maintaining family privacy and controlling who is Trustee and thus makes key decisions about fund management and distributions, there are other planning opportunities in creating the trust for your grandchildren. For example, you can specify in the Trust Agreement how the assets will be used. Maybe you’d like to make sure that the education of the grandchildren is covered, or to pay for a wedding or to start a business. Maybe you want the trust fund to be used only if the parents (one of whom is your child) cannot pay for them. You may want to eventually give the grandchild control over what money is left in the trust, but might not want that to occur until they have reached a particular age — thirty-five for example. Or maybe you would like to stagger these withdrawal rights over time.
A not insignificant component of these trusts is that the money in the trust can be protected and preserved as it is invested over time. The trust can and should be structured to be protected from the creditors and divorcing spouses of your grandchildren. In this way, the money you have left to the grandchild becomes a fund that can be used for what they need, but protected from loss.
Contact Raleigh, Durham, Chapel Hill Trust Attorneys
If you have additional questions or concerns regarding how to use a living trust to make gifts to grandchildren, please contact the trust attorneys at Clarity Legal Group by calling us at 919-484-0012 or contact us online.
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