If you’re a grandparent, one of your top concerns is ensuring that your grandchildren are taken care of financially if something happens to you. While you may have an estate plan, should you also consider setting up a trust for your grandchildren?
Here’s what you need to know.
Planning for your grandchildren’s future
A trust is a legal arrangement in which someone (the trustee) agrees to hold and manage property for the benefit of another person (the beneficiary). Trusts can be used for various purposes, including protecting assets and minimizing taxes. For grandparents, trusts can effectively provide financial support for their grandchildren while maintaining control over how the money is used.
You can choose from several types of trusts, each with its own advantages and disadvantages. For example, a testamentary trust is created through your will and only takes effect after you die. You can use this type of trust to provide financial support for your grandchild, but it will not allow them to access the money until they reach a certain age.
Alternatively, you could set up a living trust, which becomes effective as soon as it is created. This gives you more control over the money, but it also means that your grandchild can access the funds immediately.
Though some upfront costs are associated with setting up a trust, the long-term benefits can be significant, and they are a great addition to your estate plan. A trust allows you to transfer assets to your beneficiaries without going through probate. It can also be used to minimize taxes.
Seeking professional advice is the best way to ensure you set up the most appropriate trust for your circumstances. With careful planning, a trust can be an excellent way to provide financial security for your grandchild.