You’re becoming a grandparent: What now?
This article is part of our “What Now?” series that helps multigenerational families prepare for life changes. With access to all the capabilities of Bank of America, Merrill Private Wealth Management is uniquely situated to help with whole-family wealth plans so that every generation may leave their lasting legacy.
Congratulations on becoming a grandparent! We’re happy for you and your family.
This is an exciting time, but there’s also a lot to think about. In terms of your financial plans, now is a time to lean on your advisor, so that you can focus on being there for your children and their new arrival while we handle the financial aspects.
As a primer, here’s what you should be considering for a new grandchild.
PLAN WITH THE PARENTS
If you’d like to help the new grandchild financially, be sure to have a conversation with the parents, preferably prior to the child's birth, so you have time to put a plan in place.
Work with the parents to review the family’s financial situation as a whole. A new addition to the family can, for example, create the need for more space in your home or vacation residence, add to educational costs or change general day to-day cash flow for both you and the new parents.
It’s important to have an agreement and set expectations for the grandchild’s financial care, so everyone can be on the same page moving forward. Your advisor is happy to put together a financial plan for all parties involved to help with this conversation.
UPDATE YOUR ESTATE PLAN
A new grandchild likely requires revisiting your estate plan. You’ll need to:
Review your estate planning documents
Wills, trusts and other documents should be reviewed to determine if any changes are necessary. Revisions may not be needed if your initial plan was prepared with flexible provisions to account for life changes. You may also have to set distributions at designated ages for your new grandchild or include provisions for expenses like education or home ownership.
Review the family's finances and assets
You may need to examine ownership of assets like family vacation homes, endow funds or create plans to pay for future expenses like education, or make other adjustments to ensure everything is clear to your family so they can avoid any disputes.
Plan for taxes
Transfers to grandchildren may involve generation-skipping taxes, which are imposed at high rates. Make a plan with your advisor to help minimize transfer taxes.
CONSIDER A GIFT
While you may be looking forward to spoiling your grandchild with stuffed animals and the latest toys, you can also help give them another gift: financial security.
In addition to any inheritance at your passing, there are a number of strategies that involve financial gifts to grandchildren during life:
- Irrevocable trusts, which can provide tax advantages for you
- Gifts to minors to limit taxes for the beneficiary
- 529 plans, for education expenses
- Careful planning is needed for financial gifts, as they may have substantial tax implications.
If you have questions, contact your advisor. Your advisor can help you revise your financial plan to care for your new grandchild in addition to your whole family.
