The Grandparents Estate Plan
Grandparents now days, more than ever, are highly involved in their grandchildren’s lives. Whether the grandparent attends school functions, sports activities, or steps into the role of raising the grandchild, a modern day grandparent should be aware of certain estate planning options and considerations. When a grandparent is raising a grandchild. According to the 2011 Metlife Report on American Grandparents, approximately 2.7 million grandparents are raising their grandchildren across the United States. The rise of multi-generational homes has steadily increased over the last few decades which may give rise to complex legal dilemmas for the grandparent. Sometimes the grandchild is raised by a grandparent due to personal issues of the parents (i.e substance abuse, criminal activity, etc), the parent has an inconvenient work schedule, or the parent has died. In these scenarios, it is important that the grandparent, as the care giver of the child, to consider some or all of the following legal options and documents: 1. Guardianship. Guardianship is the legal process to appoint a guardian on behalf of a minor (or otherwise incapacitated) grandchild. The guardian is allowed to make legal, custody, educational, and medical decisions on behalf of the grandchild. The guardianship continues until terminated by a court or when the grandchild attains age eighteen (18). Without a guardianship or parental power of attorney (discussed below), the grandparent has no legal authority to act on behalf of the grandchild and the grandparent may face a difficult situation where they are unable to assist or act for the benefit of the grandchild. Guardianship is often sought where the child’s parents are absent, deceased, or the child’s parents cannot provide a stable home environment. 2. Updating Wills. If the grandparent has guardianship over the grandchild, the grandparent should update his or her Will to include a nomination of a successor guardian for the grandchild in the event the grandparent dies or becomes incapacitated. 3. Financial Power of Attorney. The grandparent should update his or her financial power of attorney which allows the agent to make financial decisions on his or her behalf if they are enable to act for themselves. The agent could be provided authority to make financial distributions to benefit the minor grandchild if the grandparent is unable to direct this support. 4. Parental Power of Attorney. If the grandparent spends significant time with the grandchild, but may not be in the position of raising the grandchild, the parent can sign a Parental Power of Attorney. A Parental power of attorney allows the parent to delegate certain legal and decision making authority to the grandparent over the minor grandchild. The grandparent’s authority can extend to making medical decisions for the grandchild, speaking with health care and school officials, and making decisions about care and custody for the minor grandchild. This document can be revoked by the parent(s), but allows the grandparent the ability to ensure the grandchild’s needs can be met if the child spends significant amount of time in the grandparent’s care and custody.
Including a Grandchild in Your Estate Plan. Alternatively, it is not unusual for a grandparent to assist a grandchild during his or her lifetime or the grandparent may desire that his or her grandchild receive a portion of their estate upon death. Oftentimes, we see grandparents assist the grandchild with the purchase of a home, business, or assistance with student loans. The grandparent will financially aid the grandchild intending such transaction to be a loan or a gift. If intended to be a loan, the transaction should be documented through a promissory note (including any applicable interest rate) and the grandparent should consider securing the promissory note against assets of the grandchild. If the transaction is intended to be a gift, then a declaration of gift should be signed to confirm this intent. If the gift exceeds $15,000.00 in 2020 ($30,000 for a married couple) in one (1) calendar year, then Form 709 will need to be filed with the IRS to report the gift. The loan or gift should never be oral – otherwise proving your intent after death is difficult. If the grandparent desires that the loan be forgiven on his or her death, then the estate planning documents should be updated to document such intent – otherwise the grandparent’s personal representative may seek payment and satisfaction of the loan from the grandchild. If the transaction is a gift, then the grandparent should address whether or not such gift is considered an advancement against any share the grandchild may be entitled to upon the grandparent’s death.
Other times, we have grandparents who desire to include the grandchild in his or her Trust or Will. Additional considerations include the amount the grandparent desires the grandchild to receive and whether such distribution should be outright or be held in trust for the grandchild. If the grandchild is a minor or legally incapacitated, the grandchild cannot accept a distribution from the grandparent’s estate or trust and the grandparent’s estate plan should include provisions to address such minority or incapacity. If the grandchild has substance abuse or marital issues, then a trust can provide added protection to the grandchild to help ensure the assets would not be dissipated by the grandchild or commingled with the grandchild’s marital assets.
A grandparent can provide unique emotional, financial, and physical support for a grandchild. An effective estate plan not only means documenting your intent regarding your assets and intended heirs, but may also require addressing scenarios in which the grandparent plays a more active and involved role with a minor grandchild. The grandparent may be able to outline moral guidance or other non-monetary training through the estate plan. A qualified attorney can assist to make sure your estate planning documents are created to meet your needs as well as the needs of your grandchildren.
This article is not intended to replace legal advice applicable to your situation and should be used only for informational purposes. Consult with your legal or tax advisors before implementing any suggestions contained herein. Ms. Clapp‑Younggren is an associate attorney with the firm of Sandra L. Clapp & Associates, P.A. and can be reached at aclapp@clapp‑legal.com or (208) 938‑2660.