A proper estate plan is an evolving set of documents. The creator of this plan is wise to revisit it on a regular basis or after major life events to make sure it properly reflects their wishes. One example of a joyous major life event that warrants a review of an estate plan is the birth of grandchildren. Taking this moment to adjust an estate plan will allow grandparents the opportunity to ensure they pass their estate not just to their children, but to their grandchildren as well.
1 – How should I include my grandchildren in my estate plan?
There are different ways to include children, grandchildren, and other heirs within an estate plan. These can include:
- Name each individual. Naming each grandchild individually ensures that the named individual receives a share of the estate. If that individual passes before the creator, the estate will generally divide the share amongst the other named heirs.
- Use per stirpes. With this option, in the event a named grandchild passes before the creator, the share that was meant for that grandchild would pass to their descendants, if present, instead of getting split with the other grandchildren.
- Consider primary or contingent transfers. Do you want your grandchildren to receive as a primary beneficiary, or only if the grandchild’s parents are not able to serve as beneficiaries? This applies to both the transfer of assets in a will and through the use of beneficiary designations and is discussed more in the next point.
Discuss and carefully consider each option before choosing the one that best meets your wishes.
2 – What type of beneficiaries are my grandchildren – primary or contingent?
The term beneficiary can refer to the heirs listed in the estate plan as well as the individuals listed in beneficiary designations. Beneficiary designations are used to distribute a wide variety of accounts, such as retirement and savings accounts. The individual or individuals listed as the beneficiary designation for these accounts will automatically receive the asset — it generally does not go through probate. It is important to update beneficiary designations on a regular basis to better ensure that the asset goes to the right person.
There is often space for two beneficiary designations: the primary and contingent. Defined contribution plans, for example, allow the creator to list a primary, or first choice, as well as a contingent. If the primary beneficiary is no longer alive, the asset would automatically transfer to the contingent beneficiary. If no beneficiary designation is listed or living at the time of distribution, Florida state law would guide the first attempt to transfer the asset go to the creator’s spouse. If the spouse is no longer alive, the asset would transfer to the creator’s children or legal guardian if the children are minors. If there are no children, then to the creator’s parents. If the parents are no longer alive, it would transfer to the creator’s estate.
If you would like your grandchild to be beneficiaries to these accounts, it is important to list them within the required paperwork.
3 – Should I consider a trust, such as a generation skipping trust?
Trusts are valuable legal tools as they provide the creator with a great level of control over the distribution of assets and can also come with benefits, like reducing the estate’s tax obligations. A generation skipping trust is a popular choice when looking to provide for grandchildren. This is because it allows the distribution of assets to beneficiaries that are two or more generations younger than the creator without triggering the generation skipping transfer tax.
These are just a few tips to help get the conversation started. Additional considerations to make the most of your estate include setting up educational plans like a 529 plan and gifting to the grandchildren and other loved ones while still living to reduce the taxable estate.