Gifting by Grandparents

by Jenny Ling, Esq.

As you get older, it’s only natural to start thinking about the financial well-being of your youngest family members.  For many people, that might include leaving money to grandchildren to help with expenses like college or their first home.  You might be thinking of directing money to your children when you die with the expectation that they will help their children when the time comes.  Or you might be considering leaving gifts outright to your grandchildren. Both of these options can have unintended consequences.

Persons under age 18 are not allowed to hold financial assets in their own name.  If you leave money directly to grandchildren, such as via a life insurance policy, the probate court would need to appoint a financial guardian for each of your grandchildren. Their parent is not automatically considered a guardian in these proceedings.  The financial guardian may be their parent, but if the court does not find them fit, it could appoint a professional guardian whose fees would be paid out of your gift to your grandchildren.  Your grandchildren would then receive all you gave them on the day they turn 18.  For many 18-year-olds, receiving a large sum of money can be complicated and hard to handle.

If your grandchildren are adults, you might decide to direct a certain amount of money to them in your Will outright.  However, that can have unintended consequences for your grandchildren.  By leaving an inheritance outright, you risk the grandchild squandering the inheritance if they are not financially mature, risking that the money would end up with their creditors, or being lost to an ex-spouse if the grandchild were to divorce.

For those with grandchildren with special needs, it is especially important that you make a plan for them.  If you leave money directly to your child with special needs, it may make them ineligible for means tested governmental assistance such as Medicaid and Social Security Insurance.  A “special needs trust” allows a parent, grandparent or guardian to provide funds for a person with special needs to improve the beneficiary’s quality of life without disrupting support from governmental assistance programs.

Instead of leaving assets outright to your grandchildren, you may want to consider leaving assets to them via a Trust.  By setting up a trust, you can state how you want the money you leave to your grandchildren to be managed, the circumstances under which it can be distributed, and when it should be withheld. 

Providing for your grandchildren’s future is a way to leave a lasting legacy.  If you have grandchildren and want to make sure you have a plan that will work for them, Contact Us.

Jenny Ling is a partner at the Law Offices of Jenny Ling, PLLC.  She focuses her practices on estate planning, business succession planning, business and bankruptcy.