I recently went to a dinner party where I knew none of the other guests, aside from my husband. As is standard practice, the small talk began with “What do you do for a living?” I explained I practice law at a small estate planning firm on the peninsula. And, as usual, the questions started coming. I do not know if it is the relaxed setting that pushes people to start asking me estate planning questions or perhaps it is the alcohol. Regardless, people seem to want to discuss their estate plans and they want me to give the seal of approval. Obviously, I cannot do this. I do not know enough about their families, their assets, or their wishes. Remember, our conversation is limited to the five minutes of small talk we had before they learned I was an estate planning attorney.
Back to the dinner party…the question I found most intriguing was “Why give to grandchildren?” The table of guests seemed determined to give only to their children. Of course, the decision as to who should receive assets is completely up to the donor but the donor should be aware of the consequences. If your estate is taxed and distributed to your children, then when your children die if they have a taxable estate the money will be taxed again. If you give directly to your grandchildren you can use your generation skipping transfer tax exemption, and avoid the double taxation. Now, some individuals are comfortable with the double taxation but others will do anything to avoid it.
Putting taxes aside, there are other reasons to leave assets to grandchildren instead of children (or to gift to both). Your children may spend money in ways you do not find appropriate and you prefer to leave your assets to your grandchildren. You may not like your son-in-law or daughter-in-law and think it is best to just leave the money to grandchildren. A gift to grandchildren to pay for college is really a gift to your children as they will not have to worry about paying for college. Finally, your kids may not need the money.
Regardless, this is the type of decision that requires the exchange of information between an attorney and a client. The conversation should be about your assets and your family dynamics and about tax consequences of certain decisions. If you are interested in discussing distributions to grandchildren, then please contact our office for a free consultation.