Grandparents fill a special role in the life of any grandchild. However, some grandparents raise their grandchildren and are the primary caregiver for them.
In fact, record numbers of grandparents now raise their grandchildren. According to the National Center for Health Statistics, approximately 5.4% of all children under age 18 live with a grandparent. Over 1 million households with children are headed by a grandparent without the child’s parent present in the household.
The reasons for this trend are as varied as our society. The reasons include a high divorce rate, an increasing rate of teenage and unwed pregnancy, an increase in the rate of incarceration (of parents), drug addiction, mental illness, AIDS, and, of course, poverty.
If you have responsibility for your minor grandchildren, you must plan carefully so that your grandchildren are taken care of in the event something happens to you. Because grandparents are older during the grandchild’s minority years, planning becomes all the more important. Basic planning includes:
- A Will that designates who should care for the grandchild in the event of your death.
- A general durable power of attorney designating someone to make financial decisions for you in the event you are unable to do so.
- A health care power of attorney designating someone to make health care decisions in the event you are unable to do so.
- A “HIPAA” authorization form which allows the release of medical information for you and your grandchild.
- “Medicaid triggers” in your documents to allow Medicaid planning so that your assets can be arranged to enable you to qualify for Medicaid for yourself, your spouse, and your grandchild.
If you have a considerable amount of assets, more advanced planning may be necessary, as well. For example, grandparents must be aware of the generation-skipping transfer (GST) tax. The GST tax applies whenever anyone gives assets to someone that is two or more generations younger than they are. The GST tax rate is between 45% and 55%, depending upon the year of the transfer. Each person can give at least $1 million without paying the GST tax. This tax is in addition to the normal estate tax. There are a variety of techniques than can be used to pass assets for the benefit of grandchildren without paying the GST tax.
- Paying the grandchild’s tuition and medical expenses. As long as the payment is directly to the provider, no GST or gift tax is triggered.
- Setting up a “grandchild’s trust.” A grandchild’s trust is a trust that is irrevocable and must be used for the benefit of a particular grandchild. At the grandchild’s death, the assets are included in the grandchild’s estate for estate tax purposes. Transfers of up to $11,000 each year for the grandchild may be free from tax. If you are married, this amount may be doubled.
Raising a grandchild can provide a stable, loving environment for the grandchild. Effective planning can help ensure that stability continues, to the extent possible. A qualified estate planning attorney, one whose practice focuses on estate planning, can help you plan for your grandchild’s future, as well as your own.
Mr. Morrison is a board-certified estate planning attorney with experience in both simple and complex estate matters. He can prepare an estate plan for you that achieves your goals of passing your assets to whom you wish. The firm has helped thousands of clients meet their estate planning goals and pass on lasting legacies to their loved ones. To learn more about how you can achieve your estate planning goals, please call (504) 831-2348 or visit our website at www.morrisonlawplc.com.