How Grandchildren (and StepGrandchildren) Can Affect Your Estate Plan
There once was a time when planning for traditional families seemed to be simpler. Parents planned to leave everything first to each other, a process made easier by joint titling of their assets, and then, on the death of both, the estate would be divided, by Will, equally among their children. The term “per stirpes” which is commonly used, means if any child died before their parents then his or her share would be divided evenly among his or her children, the grandchildren, then great grandchildren in a similar manner down the family tree. Very many estates still result in distributions this way but there are some exceptions, actually, enough to be noteworthy.
There are other changes as well. When trust funds were established for younger or disabled beneficiaries or those with chronic conditions the trust officer was often a representative of the local bank down the street. He (it was usually a male) was someone you might have known from other social connections. Women were at one time not considered sophisticated or knowledgeable enough to manage money and now have in several cases stepped up to handle family finances and more. Even wealthy women in the past were often not considered capable of handling their own funds. Today, the local bank was probably acquired by first a larger and then much larger institution and relationships may not be as personal. The role that was once held by a local bank officer might be filled by a financial advisor today with closer ties, or not as the case might be.
There are many variations.
With parents and grandparents often living longer today, inheritance questions regarding grandchildren have, in some cases, taken a twist. There is a question, for instance at what age would beneficiaries be inheriting. Illnesses and conditions that previously resulted in death are often survivable now. By the time trust funds that were intended for the grandchildren’s education are to be received they might no longer be needed. Grandparents survived and are older. The grandchild might have already graduated. Some grandparents, recognizing that their grandchildren are adults, have even taken the step of dividing their probate estate equally among their adult children and grandchildren.
Here is another complication. With longer life spans and more diverse family arrangements brought on by, among other things, divorce, decisions need to be made regarding just who is to inherit. Will inheritance just be to grandchildren through the blood line or will stepchildren and step grandchildren be included? Even regarding the couple themselves one serious consideration is divorce and remarriage. Some couples, recognizing the effect on their estate plans of remarriage, decide not to remarry because they want to make certain that their children or grandchildren will be the individuals inheriting. Others build these considerations into their estate plan and consider the possibilities. With greater diversity there is a greater need for reflection and potential customization of estate plans to fit the individual family’s needs and wants and not just a standardized version intended to fit the needs of a “typical” family.
Several years ago I graphed out a plan for a couple considering first the “probate” assets, those that would pass by Will. After the couple felt comfortable with the result I then turned to them and said something like “All right. This is the beginning. Now let’s consider those assets that will not pass by Will.” I explained the effect of joint titling of assets where the account, for instance, goes to the survivor even under circumstances where it was thought it was just a matter of convenience to jointly title. (I do not, by the way, discourage all joint titling, for instance, with children or with a power of attorney but merely point out the effect. Many times, for instance, a smaller account, what I refer to as an “in and out” account that receives Social Security and other monthly payments and is used to pay monthly bills may, for convenience sake, be a reasonable possibility). I just try to have clients think through the result.
With some very complicated rules that were passed under federal laws regarding distribution of inherited IRA’s and retirement funds it is becoming more necessary to determine just what beneficiaries should inherit which accounts. Their status, their age, their relationship to you, whether or not they are disabled or chronically ill can affect their taxes. Customization has become more important.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.