If you want your wealth to provide benefit to your family for generations or if you crave the peace of mind that your grandchildren will be financially secure no matter what, you may want to set up a trust. While you can opt to simply leave assets to your grandchildren after your death, a trust offers special benefits, some of which take place in your lifetime and others which can extend through your grandchild's lifetime. Here's a look at the details.
Reducing estate tax with contributions during your lifetime
When you set up a trust for your grandchild, you don't have to wait until after your death to fund it, and in fact, if you have significant assets, you can save money by contributing to the fund during your lifetime. Annually, you may contribute $14,000 per grandchild to each of their trusts. As as 2016, this is the maximum amount you may give another person without having to report the gift to the Internal Revenue Service, and if you and your spouse are both funding the trust, you may contribute $14,000 each or up to $28,000 per grandchild per year, without triggering tax. Ultimately, this benefits your estate planning objectives as it lowers your net worth, thus reducing the estate tax your heirs may have to pay.
Setting terms for the inheritance
Unlike a will, which simply details what each of the heirs receives, a trust takes estate planning a step further. While setting up the trust, you can determine when your grandchild receives the money. You can opt for them to receive all of it when they reach eighteen years of age, or you can let the trust incrementally distribute the money throughout your grandchild's adult life.
Beyond those basics, you can use the trust to ensure your grandchild has everything they need while growing up. Whether you opt to leave anything to your own children or not, you can set up the trust to cover expenses for your grandchild such as private school tuition, fees to cover memberships in sports leagues or academic clubs or whatever you like.
Even after your grandchild reaches the age of maturity, the trust can distribute money for certain purchases or as a reward for certain accomplishments. For example, if your grandchild needs a down payment for a house, wants to start a business, earns a degree or meets a certain milestone, the trust can then distribute money.
Estate planning is a delicate art. You need someone who understands the legalities and tax advantages of a trust but who also empathizes with your family dynamic and has your best interest at heart. Lead by Rebecca Bell, RB Legal does just that. We work closely with our clients to help meet their estate planning needs in unique ways that work for their families. Call us today for a free consultation.