If you’re a grandparent, you may be considering ways to help build a great financial future for your grandchildren. Whether you want to contribute to their education and career path or simply plan to bequest funds to them after your death, setting up a trust is worth considering.
What Are the Advantages?
One of the core financial and practical benefits of setting up a trust is that it allows you a high degree of specific control over how and when the funds are made available. This is not the case if you gift or leave behind a sum outright, and it’s often the central motivation of using trusts to pass money to grandchildren. You can design the trust to make funds available when your grandchild reaches a certain age or accomplishes certains milestones like graduating from university. Additionally, you can dictate how freely available those funds will be over time. When used correctly, it can create incentive and encourage financial responsibility.
Trusts and Your Will
One type of trust that is often considered in estate planning is the testamentary trust. These are particularly relevant for larger sums that are more appropriate to leave behind in a will and that you wish to be used only for specific reasons or in specific ways. They’re designed to work hand-in-hand with your will and only go into effect when they are initiated by the executor upon your death. Keep in mind, however, that if you create a testamentary trust that promises a certain amount “per grandchild”, this could drain your estate if more are born after your death. It may be wiser to arrange for a fixed lump sum that is meant to be divided between them.
What About Taxes?
The tax benefits of a trust for your grandchildren depend on your region. In the US, for instance, gifts or bequests made to grandchildren are subject to the generation-skipping transfer tax, but exemptions can be acquired with a generation-skipping trust. These exemptions have increased significantly with the recent Tax and Job Act. In both Canada and the UK, however, changes made over the years have eliminated several tax benefits of testamentary trusts, but they remain particularly apt for leaving behind funds for grandchildren in a blended family situation, not to mention other advantages when it comes to your wishes and control over your legacy.
As we often say, maximizing the strength of your estate is all about planning ahead. If you want to work with a team of estate planning experts who can empower you and your family on all fronts, the team at MacMillan Estate Planning has recently been honoured as Canada’s “Trust Planning Firm of the Year” by Finance Monthly’s M&A Awards and are more than to work with you. Call 1-833-266-6464 to get started.