How Grandparents Can Double the Benefits of Their Estate Planning and Help Their Grandkids or Other Younger Beneficiaries in the Process

Nov 14, 2022 | Estate Planning, Trust

How Grandparents Can Double the Benefits of Their Estate Planning and Help Their Grandkids or Other Younger Beneficiaries in the Process

 

  • Are you a grandparent who is concerned for your grandchildren in this post-pandemic era?
  • Worried that your adult children may not be able to provide for the grandkids as much as you’d like?
  • Would you like to reduce your taxable estate?

 

During this economically challenging time, grandparents may wish to take advantage of tax breaks while helping their younger family members at the same time.

             Q: How can they do that?

             A: Grandchildren’s Trusts and Generation-Skipping Trusts (GST)

In case you’re unfamiliar with these specialized estate planning tools, here is a short explanation of each:


Grandchildren’s Trust

 

Trusts are nothing new and are often included in an estate plan. Trusts help to minimize estate taxes, strengthen your estate plan, and help protect your assets. The grantor is the person who creates and funds a trust. If you read our newsletters, you know that there are a variety of trusts:

    • Protective Trusts
    • Irrevocable Trusts
    • Spendthrift Trusts
    • Offshore or Foreign Trusts

 

A Grandchildren’s Trust is a trust created by a grandparent for one or more grandchildren to help pass along their assets to their beneficiaries and give their grandchildren the resources they may need to achieve their goals.

 

Grandparents have choices in passing along their assets, and a trust is only one choice. But it is a versatile choice and can enable you as a grandparent to:

    • Put parameters in place about how your grandchildren or their trustee can spend the trust funds.
    • Set a particular timeline for the release of the trust funds. Typical guidelines maybe when the trustee grandchild reaches a certain age or when they reach a particular goal. The money can be released gradually or all at once.
    • Protect your dedicated assets from depletion through financial illiteracy or financial instability.
    • Fund your grandchild’s education.
    • Help your grandchild purchase a home.
    • Provide your grandchild with capital to establish a business.

 

While Grandchildren’s Trusts are similar to other trusts, they do have one unique quality: they benefit both the grantor (the grandparent) and the grantee (the grandchild) through the application of the generation-skipping tax (GST).

 

What is the Generation-Skipping Trust?

A Generation-Skipping Trust is an irrevocable trust. Once the grantor puts money into the trust, the grantor is not permitted to take it out. In other words, the transfer of the funds cannot be revoked.

The Generation-Skipping Trust does exactly what its name says: it skips a generation between the grantor and the grantee, who may be a grandchild, a great-niece, a great-nephew, or any other person—even if they’re not a blood relative—so long as the grantee is a minimum of 37 ½ years younger than the grantor. By skipping one generation, the trust removes one cycle of estate tax.

 

Interested in finding out more? Call Sussan Greenwald & Wesler to learn how you can lower your estate tax by making annual gifts to grandchildren’s trusts at 609-409-3500.

 



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