Including Grandchildren in Your Estate Plan: What to Know

June 13, 2025

When it comes to estate planning, many individuals focus on passing assets to their children or spouses. However, including grandchildren in your estate plan can have significant long-term benefits, ensuring their financial security and setting them up for success in the future. A thoughtfully constructed plan can provide not only financial assets but also the opportunity for personal growth, educational advancement, and wealth preservation across generations.

In this article, we will explore practical strategies for including your grandchildren in your estate plan. From setting up custodial accounts and contributing to a 529 college savings plan to creating trusts for asset protection, we will discuss options to help ensure your grandchildren’s financial well-being. We’ll also cover the importance of educating your grandchildren about money management, helping them understand the value of financial responsibility for a secure future.

1. Setting Up Custodial Accounts

One of the most straightforward ways to include your grandchildren in your estate plan is by setting up custodial accounts. These accounts are managed by an adult (often a parent or grandparent) until the grandchild reaches a certain age, typically 18 or 21, depending on state laws. Custodial accounts are often used for minor beneficiaries, allowing you to contribute gifts of money, stocks, bonds, or other assets on behalf of the child.

Custodial accounts, such as those established under the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA), offer a simple way to provide a financial foundation for your grandchild. The funds in these accounts can be used for any purpose, including education, healthcare, or general well-being. However, once your grandchild reaches the age of majority, they gain full control over the assets, so it’s important to weigh this option carefully, especially if you are concerned about how the funds will be managed once the child comes of age.

2. Contributing to a 529 College Savings Plan

Education is one of the most valuable gifts you can give your grandchildren, and a 529 college savings plan is a tax-advantaged way to contribute to their higher education expenses. These plans allow you to set aside money for tuition, fees, and other educational costs, growing tax-free over time.

Contributing to a 529 plan also offers significant tax benefits, including the ability to deduct contributions from your state income taxes in some cases. Additionally, the funds in a 529 plan can be used for a variety of educational expenses, including tuition, books, and room and board at eligible institutions. If your grandchild doesn’t attend college or has funds remaining, the account owner can transfer the money to another qualified family member or even use the funds for K-12 tuition.

A 529 plan is an effective way to help your grandchild avoid student loan debt and start their adult life on solid financial ground. Additionally, it provides a clear, focused use for the funds, ensuring that your gift is used for its intended purpose – to support their education.

3. Establishing a Trust for Long-Term Asset Protection

Another option for including your grandchildren in your estate plan is creating a trust. Trusts are versatile tools that can help manage and protect assets for future generations. They allow you to specify how and when your grandchildren will receive your assets, ensuring that they are provided for in a structured manner.

There are several types of trusts that can be used for grandchildren, including:

• Revocable Living Trusts: A revocable trust allows you to retain control over the assets during your lifetime. You can modify the terms of the trust as needed and name a trustee to manage the assets after your passing. This type of trust can be used to hold assets for your grandchildren’s benefit, with provisions for how and when they will inherit those assets.
  
• Irrevocable Trusts: An irrevocable trust, on the other hand, is more permanent. Once assets are transferred into the trust, they cannot be altered or removed. This option can be more beneficial for estate tax purposes, as the assets are removed from your estate, potentially reducing your taxable estate. Irrevocable trusts can also be structured to provide long-term protection for grandchildren, ensuring that assets are managed responsibly by a trustee.
  
• Special Needs Trusts: If your grandchild has special needs, a special needs trust can provide financial support without jeopardizing their eligibility for government assistance. This trust allows you to make gifts to the trust that will be used to support the grandchild’s well-being without disqualifying them from receiving public benefits.
  

Establishing a trust for your grandchildren can provide long-term asset protection, ensuring that their inheritance is used wisely and in accordance with your wishes.

4. Educating Your Grandchildren About Money Management

While providing financial resources is important, it is equally essential to ensure that your grandchildren understand how to manage and grow those assets responsibly. Educating them about money management, budgeting, and the importance of financial discipline is a crucial part of your estate planning strategy.

You can start by having open conversations about money and wealth, discussing the importance of saving, investing, and living within their means. Teaching your grandchildren about financial responsibility early on can have a profound impact on their ability to manage the wealth you pass down to them.

Additionally, consider giving your grandchildren hands-on experience with managing money. This could involve helping them open a savings account, teaching them how to budget, or encouraging them to make small investments. By instilling these lessons early, you can help ensure that your grandchildren not only receive financial support but also know how to make the most of it for their long-term benefit.

5. Working with Financial Advisors

Creating an estate plan that includes your grandchildren requires careful thought and planning. Working with an estate planning attorney and financial advisor is essential to ensure that the assets you leave behind are properly managed and distributed. These professionals can help you navigate the complexities of tax laws, trusts, and financial planning strategies to ensure that your grandchildren are well taken care of.

An advisor can also help you balance your estate plan to ensure that all of your beneficiaries are treated fairly and that your intentions are clearly communicated. This can help prevent misunderstandings or conflicts among family members, ensuring that your legacy is carried out in the way you intended.

Conclusion

Including your grandchildren in your estate plan is a meaningful way to ensure their financial security and set them up for success in the future. From custodial accounts and 529 plans to trusts and financial education, there are a variety of strategies you can use to help your grandchildren build a strong financial foundation. By planning carefully and working with trusted advisors, you can provide the financial support your grandchildren need to thrive, while also teaching them the value of financial responsibility.

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This content is for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor for specific guidance tailored to your situation. First Western Trust Bank cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.