If you want your grandchildren to benefit from your fortune, it may be wisest to set up trusts where they are the beneficiaries but the finances are controlled by a trustee. According to Estate Planning, grandparents should never allow their children to be the direct beneficiary of an estate, or they may use their inheritance money for no apparent reason.
Sometimes, individuals set up trusts that will allow a child access to the money on their 18th or 21st birthday. If the money is granted in one lump sum, then these young adults have the ability to squander all of your hard-earned money in a matter of minutes. There are many stories of grandchildren or grandchildren who depleted a trust on exotic cars, lavish clothing, and other unwise purchases. The accounts that permit this behavior are called Uniform Transfer to Minors Act accounts or (UTMAs.)
UTMA accounts are owned by the child but are taken care of by an adult custodian until the child reaches an appropriate age. Most of the time, the custodian of the account has no legal ownership over the finances and they cannot determine who the money will be spent. The child owns the money personally and the custodian loses his or her role in managing the money when the child comes of age.
For grandparents, UTMA accounts can be a poor decision. If you have been saving to leave a legacy for your grandchildren, but they are not wise investors when it comes to finances, all your hard work may come to northing. Grandparents may opt for an UTMA because they can gift out their money using the $14,000 unlimited tax exclusion annually. This will reduce the amount of their taxable estate, and allow grandkids to get a greater slice of the financial pie then if the grandparents waited to divide the estate until after they have passed on.
Grandparents have the ability to open an account for each of their grandchildren and up the $14,000 tax exclusion amount into each account. If they continue contributing to these accounts during their lifetime, they could create six-figure balances that could help a grandchild with his or her finances. While it may be helpful for a wise and investing child to have this fortune at a young age, there is many times that having so much money could result in disaster. Some children will not have the discretion to choose how they should use their newfound fortune, and may spend the money on foolish purchases.
With a UTMA, no one can tell the child what to do with the money, because he or she is the owner of the finances. Another interesting aspect of UTMA accounts is the fact that a child can sue any parent or custodian who does not take care of the account or uses the money for personal expenses. Once the child reaches 18, he or she can sue and demand that the money be restored that was in the account.
In order to avoid drama and complications with your children or grandchildren, it is best to set up an irrevocable trust and list yourself as the trustee of the account. With a lifetime asset protection trust, you will be able to provide finances for your child or grandchild for years but they money will come in installments. This way, your child won't be suddenly gifted hundreds of thousands of dollars. He or she will get small amounts of money at certain ages and can use the money wisely. If you want more information about trusts and grandchild inheritance, talk to an attorney today for more information!