You’ve worked hard all your life. You may not have started with much, but now you have a comfortable life. You have a family you love and you no longer have to clip coupons, though you may still out of habit. When your children were growing up, you had work and responsibilities and were not able to savor their childhood as you wanted. It hardly seems possible, but now they have kids of their own.
But, this time around, you can savor the children. You can take them to the park, play board games with them, and, when you or the grandkids get tired, you can drop them off back with their parents.
You gave your children a great start in life and they are all well established. And you are leaving them your assets to ensure their security later in life. But, what about the precious grandchildren? Would you like to secure their future as well? It may be easier than you think.
You can give $11,000 to each grandchild each year with no gift or estate tax consequences. If you are married you can give twice this amount. Due to the miracle of compound interest, this can create quite a nest egg by the time the grandchild is at retirement age. The average rate of return for large, publicly-traded stocks, net of inflation, has been about 7.3%. Money invested at this rate would double about every 10 years. Let’s say you and your spouse each contribute $11,000 for the first two years of the grandchild’s life, for a total of $44,000. If this nest egg were invested and returned the average historical stock market return, by the time your grandchild is age 52, he or she would have over $1.4 million in today’s dollars. By age 62, the earliest age to begin drawing social security, he or she would have over $2.8 million.
Of course, when your grandchild is a newborn, you cannot just give him or her a check. However, you can set up an irrevocable trust with him or her as the beneficiary. In fact, you can set up one trust for all of your grandchildren, with it splitting into separate trusts after your death or when they have achieved a certain age. You can set up the standards for distributions and can ensure that the nest egg is not squandered by the grandchildren at an early age.
As with most things, there are complications. You have to be careful that the trust assets will not be subject to a “generation-skipping transfer tax.” A qualified estate planning attorney can help you determine how to best provide for your grandchildren. A qualified financial planner can help you achieve the financial goals so the nest egg you provide will ensure a comfortable retirement for your grandkids.
Ronald “Chip” Morrison, Jr. is a Board-Certified Specialist in Estate Planning and Administration by Louisiana Board of Legal Specialization and a member of the American Academy of Estate Planning Attorneys. He has been engaged in Louisiana trusts and estate law for the last 18 years. 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.
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