The Risks of Leaving Money to Your Young Grandchildren
When creating an estate plan, everyone tries to do what’s best for their family, including parents and grandparents. They may give specific gifts in their wills, thinking those documents won’t be needed for years, after their grandchildren finish high school or college.
However, many people fail to plan for unexpected circumstances. No one expects to pass away suddenly or unexpectedly. If you leave money to a young grandchild in your estate plan, it could cause problems later. This could turn your thoughtful and loving gift into a source of frustration instead.
Before meeting with an attorney, think about the possible issues of naming your young grandchildren as beneficiaries.
Minors Can’t Legally Own Property
Naming a child or anyone under eighteen as a beneficiary in a will or on a financial account can lead to court involvement. This could go beyond the usual probate process. Minors can receive property as beneficiaries, but they can’t legally own it until they turn eighteen.
[Related Reading: Do Beneficiaries Have to Go Through Probate?]
If you pass before your grandchildren turn eighteen, the court may appoint a guardian to manage their inheritance. This can lead to a long and costly process, lasting months or even years. Your family may also have to attend court hearings. This also risks misuse of funds if the guardian doesn’t act in the child’s best interest. It could lead to family conflicts, legal battles, and broken relationships.
Inheritances Can Block Grandchildren from Receiving Assistance
Inheritances count as income, so a child who receives one may be blocked from getting certain government assistance. If your young child gets Medicaid for a special needs diagnosis, a large inheritance could disrupt their assistance.
Additionally, many educational grants and scholarship programs offer income-based assistance. If your minor grandchild applies for college and fills out the FAFSA, their inheritance could count as income and block them from receiving benefits.
Inheritances Often Come as a Lump Sum
Without a trust, inheritance funds are usually given to the beneficiary as a lump-sum payment. If you leave money to your young grandchild in your will or as a beneficiary, they’ll get the full lump-sum payment when they turn eighteen.
This could benefit them, but it could also be a drawback. Receiving a large sum as a teenager can help them start their dreams or education. But it could also lead to poor financial decisions, like overspending or living beyond their means. Unfortunately, it can be difficult to tell what path your grandchild may take.
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Determining how to structure your estate plan best to benefit your loved ones can be difficult, and finding ways to give your young grandchildren gifts can be even more difficult. However, you shouldn’t be discouraged if leaving gifts to your grandchildren is important to you. There are ways to do so that would benefit them in the long run and allow them to receive precisely what you want them to receive. That is why working with an experienced estate planning attorney is so essential.
At Relational Estate & Elder Law, we value maintaining strong family relationships when crafting your estate plan. We want to help you craft a relational estate plan that works best for you and your family so that you can have peace of mind. If you’re interested in working with our team, please contact us today.
Disclaimer: The information you obtain in this post is not, nor is intended to be, legal advice. This blog shares general best practices when navigating Virginia or West Virginia law, but you should consult an attorney for advice regarding your individual situation.