Whether you are a parent, grandparent, or the legal guardian of a child, you would want to make sure that their future remains secure irrespective of you being there.
However, things may get complicated as the resources and options to secure your grandchild’s financial future are limited. Still, with the proper knowledge and right tips at hand, you can do a lot more for your grandkids than you might think.
You need to keep in mind several things while planning for your grandchildren’s financial future. Keep scrolling down and read more to gather some tips from the experts.
Tips for Financial Planning for Grandchildren
While you plan for your grandchildren’s financial future, you would not want to leave any stone unturned. However, given the complexity and frustration the process may bring along, it is always wiser to keep a few factors in mind.
Here’s what you need to consider while planning for your grandchild’s finances:
Timing is the key
Whether you want to transfer your wealth or a fund in the name of your grandchild, the key factor at play here is the time it all happens. Be it cash, property, or any other kind of capital property, you will have to keep the tax consequences in mind.
When transferring funds or property, you will be deemed to have disposed of the asset at appropriate market value, and thus you’ll be required to pay taxes on any gains through it.
Also, consider the income attribution rule, which states that any income on property transferred to a related minor (the grandchild in the instant case) will be attributed back to the transferor.
In short, you’ll have to report any gain on the capital as income until your grandchild turns 18. However, the attribution rule won’t apply if the capital is transferred to an adult grandchild.
Your grandchild’s age plays an important role
Another important factor that affects your financial planning strategy is your grandchild’s age and life stage. While the future is uncertain and can take turns one may not anticipate, it is still wiser to plan the financial strategy for your grandchild’s future based on their current age. Most finance tools allow you to revise contributions and other essential aspects down the line.
How many grandchildren do you have?
Along with stipulating the timing for the transfer age of your grandchildren, you should also consider the number of grandchildren, which includes not only the current but also future grandchildren.
However, when the number of grandchildren is unlikely to grow, you can proceed to draft the financial planning for your grandchildren.
But in case additional grandchildren are anticipated down the line, the financial implications can take a toll on your estate. For instance, say your will dictates that each of your grandchildren will get $50,000. Now there might be only one grandchild at the time of creating the will, but by the time you pass away, there could be four. That will be an additional $150,000!
Should you go for a trust?
The decision largely depends upon the number of grandchildren and the value of the assets in the will. In the case of a modest inheritance, a simple clause can empower the executor to pay the funds to a grandchild’s parents.
However, in case the inheritance is of greater value, going for a trust is beneficial regardless of the age of your grandchildren. Trusts allow you to determine how and when the fund can be used with greater flexibility.
Not just that, but grandparents can also alter the plans as and when the circumstances change.
Moreover, a trust also ensures asset transfer as dictated in the will, i.e., whether the same benefits are offered to each grandchild or if certain circumstances are to be taken into account to provide customized benefits.
What about their parents?
The decision to benefit both the generations or any one of them is solely up to your consent and will. However, it will minimize misunderstandings and conflicts down the road if you exclude someone or seek buy-in from your children.
However, it is pertinent to mention that it may not be suitable to bypass a child since it is a legal obligation for the parents to provide for dependent children. Even a non-dependent child has the right to challenge the will In such a case.
Other options for financial planning for your grandchildren
Financial planning for your grandchildren can be a real headache if you do not choose the right options. Suppose you do not want to bother yourself with a lot of confusion and legal implications and want to ensure a financially secure future for your grandparent. In that case, you must invest in something that assures a guaranteed return for their lifetime.
Child Plan ™ Participating Whole Life Insurance can be a great choice here. Child Plan ™ ensures that your grandchild receives an annual dividend for the rest of their life, tax-free.
The great thing here is that Child Plan ™ is considered fully funded after 20 years. When it comes to transferring ownership of Child Plan ™, you can do it at any moment after your child reaches the age of 18. Your child can use the money to pay for school, put a down payment on the first house, start a new business, or meet any other financial needs that arise.
The great part about Child Plan ™ Participating Whole Life Insurance is that you may open it as soon as your child reaches the age of 14 days. Furthermore, there is no contribution limit for Child Plan ™, and you can contribute for as long as you like, with no age limits.
Final Thoughts
Call it emotional attachment or the love for their grandkid; no grandparent would want their grandchildren’s future to be financially uncertain. Whether it be a will or a fund, grandparents would tend to do everything they can when financial planning for their grandchildren.
However, given the uncertainty, limitations, and tax implications involved with most of the options available for grandparents to secure their grandchildren’s financial future, Child Plan ™ Participating Whole Life Insurance offers the best available option.
With no contribution or age limits, Child Plan ™ is something that every grandparent would happily want to invest in to ensure the financial security of their grandchild’s future.
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