24 Young at Heart February 2021 Unified Newspaper Group
Take care when leaving assets to grandchildren Estate Planning BY DERA L. JOHNSEN-TRACY
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ften, grandparents wish to set aside a certain amount or a certain percentage of their estate specifically for their grandchildren. There are several options available to accomplish this objective, and each has its own advantages and disadvantages. Those include 529 college savings plans, direct beneficiaries and trusts, either within your will or within a living trust. Regardless of which option you choose, it is important to make sure that all the pieces to your estate planning puzzle, including ownership and beneficiary designations for each of your assets, fit together to ensure a smooth transition upon your death.
529 plans A 529 college savings plan can be beneficial from an income tax standpoint. You can remain the owner of the plan during your lifetime while designating a specific grandchild as the beneficiary of each account. Keep in mind, however, that the funds are only available (without penalty) for approved educational expenses and might not include tuition for nontraditional educational institutions, such as cosmetology colleges. If you choose this option, be sure to designate a successor owner on the account upon your death.
Direct beneficiary If you name a grandchild as the direct beneficiary of a life insurance policy or deposit account, this option will provide him or her with an outright distribution of cash upon your death (assuming your grandchild is over 18). This option will not allow you to determine how your grandchild can use the cash. If your grandchild is a minor, this
option is not a good solution because naming minors as direct beneficiaries will create the need for a guardianship proceeding in court upon your death.
Trust within a will Within your will, you can create testamentary trusts for your grandchildren in which you designate the trustee of each trust, at what age your grandchild can receive an outright distribution and what the assets can and cannot be used for in the meantime. If you are relying on a will to transfer your assets upon your death, your estate likely will be subject to a probate proceeding in court. Only those assets that are titled solely in your name, with no designated beneficiaries, will be part of your probate estate. Assets with co-owners or designating direct beneficiaries will be distributed outside of your will and
not to any trust established within your will.
Trusts within a living trust Within a fully-funded Living Trust, you can create trusts for your grandchildren and ensure these trusts are funded upon your death immediately, privately, and without the need for a costly and lengthy probate proceeding. Through a comprehensive estate plan, you can even create incentives for your grandchildren. For example, you can direct that the assets in your grandchild’s trust are only available for his or her post-high school education until the age of 30 or until he or she obtains a bachelor’s degree, whichever event occurs first. Attorney Dera L. Johnsen-Tracy is a shareholder and co-founder of Horn & Johnsen SC, a Madison law firm dedicated to estate planning, business law, and real estate.
