The desire to leave money to a grandchild or grandchildren is among the most common estate planning goals for Houstonians. As a grandparent, you have many options on how to leave money to one or more grandchildren. However, opening a grandchildren’s trust is a good way to provide meaningful access to resources while maintaining some level of control over how the funds are spent.
At the Houston estate planning law firm of McCulloch & Miller, PLLC, we routinely advise clients on strategic gifting alternatives that provide benefits for both the grandparents and grandchildren. Our knowledgeable lawyers take the time to listen to your goals and objectives, ensuring that the selected strategy accomplishes exactly what you set out to do.
Options for Gifting to GrandchildrenGrandparents have many options when it comes to leaving money to their grandchildren. In large part, the decision of which option works best for you depends on the amount of control you want to exercise over the gift. Below are a few of the most common strategies:
Cash GiftsPerhaps the easiest way to leave money to your grandchild is to make a cash gift during your life. This provides an obvious and immediate benefit for your grandchild. Alternatively, you can leave them money in your last will and testament. Of course, this option gives your grandchild unfettered discretion on how to use the gift, which may raise issues for younger grandchildren or those who lack the financial literacy to responsibly oversee their expenses. From the donor’s perspective, the IRS allows individuals to make up to $16,000 (for 2022) in gifts per year, per donee, without incurring any tax consequences.
Paying for Higher EducationAnother common option is to set money aside for a grandchild’s college, trade school or job-training program. A Texas College Savings Plan is a tax-advantaged 529 plan in which all earnings are not subject to state or federal income tax when used for qualifying education expenses, such as tuition, housing, books and supplies. Additionally, up to $10,000 per beneficiary can be used for K-12 education expenses. However, any non-qualifying withdrawals are subject to income tax as well as a penalty.
Grandchildren’s TrustFor those looking for maximum flexibility in their gifting options, a grandchildren’s trust may be the best option. A grandchildren’s trust is typically an irrevocable trust that names one or more grandchildren as the beneficiaries. When you create a grandchild’s trust, you will also set forth terms that will guide the trustee in making distributions. For example, you can include provisions to give money to your grandchildren at certain milestones, such as graduating high school or college, getting married, or having a child. You can also give the trustee as much or as little discretion as you’d like.
You can either set up a trust for each grandchild or create a “family pot” trust, where a trustee oversees a single trust for the benefit of multiple grandchildren. The family pot trust is generally preferred by those who have a large number of grandchildren, as it significantly reduces the administration costs. However, because these trusts are most often irrevocable, it is essential that you consult with an experienced estate planning attorney to ensure that the trust aligns with your other estate planning objectives.
Create an Effective Strategy for Gifting to Grandchildren by Reaching Out to an Experienced Estate Planning LawyerIf you are considering gifting money or assets to your grandchildren, contact the law firm of McCulloch & Miller, PLLC.
The dedicated estate planning attorneys at McCulloch & Miller, PLLC have more than 40 years of experience helping clients meet their goals through effective, strategic planning. We can help you identify all of your options, offer insight into the benefits of each possibility, and efficiently create the documents needed to implement the plan.
To learn more, and to schedule a consultation with a Houston estate planning attorney today, call (713) 333-8900. You can also reach us through our online contact form.