A column on estate and financial planning for everyone
This is the fifth part of a six-part series examining estate planning needs that coincide with life’s milestones.
As your family grows to include adult children, their spouses, and your grandchildren, you should evaluate whether your estate plan provides for each beneficiary in your life in a way that meets your objectives.
Including a lifetime trust arrangement may be something you want to consider in order to protect a child’s inheritance from creditors, including a potential ex-spouse. Some clients are hesitant to include this much “dead hand control” in their estate plan, but your adult children may actually desire the benefit of a lifetime trust arrangement.
If your grandchildren are minors, or even young adults, you should consider holding their inheritance in trust until they reach a financially mature age. Trusts are often more appealing than custodial accounts, because you may delay large trust distributions beyond the age of majority, which is only 19 in Nebraska. You may designate who has financial management of the trust by choosing a trustee and/or an investment manager to serve until full distribution of the principal. If one of your beneficiaries has special needs, state aid qualification considerations must be evaluated. You’ll want to consider a special needs trust to hold and manage their inherited property.
Many grandparents have a specific desire to pay for the costs associated with their grandchildren’s college education. This may be done during your lifetime with a special gift tax exemption for tuition payments made directly to a qualifying educational institution and also with annual gifting for the benefit of your grandchild. To meet these objectives within your estate plan after you pass, your trust could include specific provisions related to distributions for educational expenses. Perhaps you want to limit distributions to an amount equivalent to the cost of tuition charged by an in-state university. Maybe you want to pay for a new laptop or a car for your college-aged grandchild. You may also include incentives for achieving certain grades, for the attainment of a bachelor’s degree, or for graduating with honors.
While tax considerations are often secondary to non-tax considerations in estate planning, introducing beneficiaries at a generation below that of your children brings up the possibility of the federal generation-skipping transfer tax. You should work with an attorney who is knowledgeable in this area to assure you are leaving your assets to your beneficiaries in a tax-efficient manner.
ABOUT THE AUTHOR – LISA M. LEHAN
I am a shareholder of Koley Jessen P.C., L.L.O., located in One Pacific Place. My practice is focused on estate and tax planning. Outside of the office, I enjoy spending time with my husband and our three children. For help with your family’s estate planning needs, please contact me directly at 402.343.3881.