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Issues to Consider When Leaving an Inheritance to a Grandchild

When leaving an inheritance to a minor child, it's important to make sure that precautions are taken to prevent parents or other adults in the child's life from using the inheritance for their own personal gain. This is a common concern among grandparents wishing to leave an inheritance to their grandchildren, especially when the grandchild's parents are no longer married or on bad terms with the grandparents.

The easiest way to protect a modest inheritance left to a grandchild is to create a custodial account (CUTMA) under the control of a trustworthy relative, friend, or private fiduciary to be used for the child's benefit. For a larger inheritance, a formal trust could be created.

To prevent waste, many people specify that an inheritance left to a grandchild must be used for a specific purpose. For example, a grandparent may leave a trust that can only be used for the child's college tuition, room and board. This ensures that the inheritance is used wisely while encouraging the child to develop the skills necessary to be an independent adult.

If you would prefer to make outright inheritance distributions, you may want to consider staggering the distributions for when your grandchild hits certain ages. For example, you may allow access to one-third of the inheritance at 18, one-third at age 25, and the remainder at age 30. This would ensure that the grandchild has funds for life goals such as attending college, marrying, and buying a house without providing the temptation to waste cash on frivolous expenditures.

For a grandchild with special needs, a discretionary trust is the preferred option. A discretionary trust prevents the beneficiary from directly accessing funds, giving the trustee sole power to use the trust assets for the welfare of the beneficiary. This arrangement protects the trust assets from creditors while preserving the beneficiary's eligibility for need-based programs such as SSI and Medi-Cal.

How Can We Help?

An experienced estate planning attorney can explain the issues surrounding inheritances for minor children in greater detail. If you are in need of legal representation relating to an estate planning issue, please call our office at (626) 683-8113 or email us at info@PasadenaLawOffice.com.

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