The Best Way to Provide for Your Children and Grandchildren

If you want to leave behind a legacy and ensure that your children and grandchildren will be taken care of, there are a number of important factors to consider.

The first step is to figure out what you want to do. Ask yourself this question: What do your children need? If you have two or more children, does one need more help than another? Essentially, the decision you need to make is between treating them equally and treating them fairly, after taking into account their particular circumstances. Do they have a particular need, such as funds for education, or a home purchase? Consider these same questions when thinking about how you would like to provide for your grandchildren.

Next, you need to think about asset protection or what can be thought of as putting a “moat” around the money. For instance, say you want to leave money to your youngest child, but are concerned that he or she isn’t well acquainted with managing money. The best way to solve this problem may be to use a trust, which will allow you to apply restrictions on how the money is accessed. The trust will have a trustee of your choosing to act as an administrator. This person should, first and foremost, be someone you trust. He or she should also be practical, good with finances, and fully capable of dealing with lawyers and accountants.

The trustee will be tasked with following the terms that you decide upon when creating the trust. You can be strict and deem the money “for income only,” or you can be liberal and have no restrictions at all. As an alternative, you can leave all the decisions on distributions up to the trustee. In this instance, it would be even more essential that you have complete confidence in the trustee’s judgment.

Some trusts use the attainment of various ages as a means of distributing out the money in a trust gradually. For example, you could release a quarter of the money when the recipient reaches the age of 30, and then release the remaining three quarters every five years, to ensure that it lasts for an extended period of time. Other types of trusts, sometimes referred to as dynasty trusts, are never fully distributed to the beneficiaries and stay in trust for generations.

Trusts can be a great solution for leaving large sums of money to your children or grandchildren. If you’re interested in leaving a smaller amount of money, and aren’t overly concerned with how quickly it is used, 529 plans or UTMA accounts are a good option. You could set up a college savings plan for your grandchildren using a 529 plan.

Another option is to leave your IRA to your children. If you do this, make certain you get professional advice to ensure the best tax result. Under the right circumstances, when they inherit the account, they may be able to defer the income taxation of the account over their life expectancy, which is typically long period of time.

The best way to leave money behind for your children and grandchildren is to think about how you would like to help each individual and to ensure that the money you leave behind will be both protected and used appropriately.

Kevin Ellman is the CEO of Wealth Preservation Solutions, LLC. Visit the Wealth Preservation Solutions website here.

This article originally appeared on wealthpreservationsolutions.com.

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