Why should you plan for the inheritance of your grandchildren now?
It's a noble idea to create an inheritance that can help your grandchildren pursue their dreams and one day take care of their own families after you're gone. However, in order to leave your legacy for your grandchildren to enjoy, you need to prepare now. The decisions you make today about estate planning, trusts and the terms of your will are the only means you have to protect some of your assets for your grandchildren. If you pass on before legally finalizing these plans, California state laws will default to giving your children or other close relatives everything, and your grandchildren probably won't receive any of your inheritance at all.
What are the consequences if you don't make a will and plan your estate now?
When you pass on unexpectedly without making an official will first, California intestate succession laws will go into effect to determine what happens to your assets after resolving any remaining debts you may have. To summarize, the law favors your closest family members by default. Therefore, grandchildren normally wouldn't receive any assets unless they are your closest surviving family members, which typically means their parents passed on before you. Spouses with whom you had an existing relationship with upon your death, not former spouses, generally receive most of your property and half of your assets. Then the remainder goes to your other close relatives. Unfortunately, many people may come forward to contest these decisions and delay the legal process for your family since information about your estate becomes public if you die without making a will.
After your initial consultation with a lawyer, start making your will
Don't underestimate the importance of creating a will properly. If you don't do it right, according to California state laws, then the government could invalidate the entire document you meant to be a will.
What are the most common sources of the inheritance you'll leave for your heirs?
You can leave anything in your estate to your grandchildren as part of your inheritance. The definition of your estate is technically all of your assets: your bank and brokerage accounts, property, stocks and bonds, cars and any other valuable items you own. Additionally, your children and grandchildren can also receive inheritance from your life insurance policy, retirement funds and any other payments from others who took out a loan from you. A lawyer will help you calculate the real value of your estate by researching the current market value of your assets that remains after deducting any final debts you may have, such as a home mortgage. You'll need the help of legal analysts to also determine how much money in taxes that your heirs may have to pay, which could include estate taxes and capital gains taxes. They'll also advise you on how to minimize these taxes so that your loved ones will receive as much as possible. Then you can make the right decisions about how to divide your estate between those you love.
For example, one of the ways your children and grandchildren can avoid paying tax on their inheritance is if you begin contributing up to $14,000 annually to accounts intended for them now. Also, you can make direct payments for their college education or their medical bills to the respective institutions for as much as they need without paying any gift tax.
According to California's tax law Proposition 193, you can transfer property to your grandchildren without requiring a reassessment of the property as long as their parents are deceased upon the date of inheritance. This practice often reduces the amount of property tax your heirs must pay.
Since tax laws do periodically change, consult a lawyer for more details.
Preserve the inheritance of your grandchildren so that they don't spend it too quickly
Traditionally, you can protect the funds of your heirs to make it last longer by appointing a guardian to safeguard their assets for them until they are 18-years-old since a minor child isn't legally allowed to care for themselves or manage their own property.
Another good option is to create a custodian account that complies with the California Uniform Transfers to Minors Act. Your heirs won't be able to access these funds until they become 25-years-old or satisfy the other specifications you determine. Until then, you can nominate someone to supervise these funds for the child's benefit. In a revocable living trust, you can set up additional requirements that your heirs must follow in order to qualify for the funds you've set aside for them. This option can help promote their good behavior in the future and prevent excessive and irresponsible spending.
Overall, estate planning is important to organize and structure your inheritance
Estate planning encompasses many things:
- Choose who runs your estate if you become unfit to do so.
- Decide when and how you want to divide your assets to your heirs.
- Detail who receives which parts of your estate.
- Appoint someone to execute your final wishes.
At the very least, you need your estate plan to include what happens to your assets after death and who you want to be responsible for overseeing these final proceedings. Especially if you have a highly valued estate, lawyers are essential to help guide you through the process of preserving your assets appropriately for your heirs and reducing the taxes on those assets.
Remember that without a will or official estate planning, the final decisions about where your assets go rests with a California judge alone. State law favors your closest relatives in determines of splitting your inheritance, but such rulings make lead to long-lasting conflicts within your family and long trials whenever someone decides to contest the case, which is more common when you don't leave an official will behind.
Ultimately it's up to you to choose what happens to your legacy, so talk to a lawyer today to get the best possible advice for the future of your children and grandchildren.