Every year, the time leading up to back-to-school season puts education costs front and center. Parents are thinking about tuition, activities, and college savings, while grandparents and other family members may be considering how they can help. But education planning is often only one piece of a larger question: How do you create an estate plan that works for several generations of your family at the same time?
For families who have accumulated assets, simply dividing everything equally among the children may not accomplish what they actually want. A thoughtful multi-generational estate plan considers not only who inherits, but also how and when they inherit, the risks they may face, and whether assets should continue to benefit future generations.
One Family, Different Needs
Children and grandchildren rarely have identical circumstances. One adult child may be financially established, while another is building a business. In families with great-grandchildren, the first and second generations may already be well-established with their own plans in place, making the third generation a greater planning priority. Some beneficiaries may be married, divorced or remarried, while others may have children who need additional support.
That is why “equal” does not always mean that every beneficiary must receive assets in exactly the same way. A well written trust or set of trusts can allow assets to remain available for a beneficiary while providing additional protection and structure. Depending on how the trusts are designed and administered, it may also provide greater protection against risks such as creditors, bad influences, or a future divorce.
This can become particularly important in blended families, where spouses bring children from prior relationships. An estate plan should carefully coordinate with prenuptial or postnuptial agreements, beneficiary designations, property ownership, and other existing agreements so that one document does not unintentionally undermine another.
When Divorce Changes the Family Plan
Divorce or break ups can also change an estate plan in ways that extend beyond the former spouses. Parents should consider whether their existing documents and beneficiary designations still accomplish their goals for the children of the ended marriage or relationship. Trusts can be particularly useful when a parent wants assets preserved for the children rather than distributed in a way that could place those assets under the control of a former spouse or other unintended person. Divorce-related court orders often include inheritance provisions that can override estate planning documents. Reviewing the estate plan during and after a divorce can help ensure that the children remain protected as the family structure changes.
Planning Quietly for Special Circumstances
Multi-generational planning also allows parents and grandparents to address individual circumstances without making those differences the centerpiece of the family estate plan. A beneficiary may have a disability, difficulty managing money, creditor concerns, an unstable marriage, or simply need more time before controlling a substantial inheritance. Trust provisions can be tailored to address those concerns while preserving appropriate privacy and flexibility.
The goal is not necessarily to control beneficiaries from beyond the grave. It is to create a structure that gives an inheritance a better opportunity to accomplish its intended purpose.
Education Planning Should Work with the Estate Plan
Families may have 529 plans, custodial accounts, trusts, or other assets intended for education. Each has its own rules, including state-regulated requirements, regarding ownership, beneficiaries, successor owners, taxation, and distributions. Those arrangements should be reviewed alongside the estate plan rather than treated as completely separate accounts.
Grandparents who want to contribute toward education should also consider the larger picture. Is the goal to pay for college only? Graduate or professional school? Should unused funds be available for another family member? And how does the education plan coordinate with what that grandchild may eventually inherit through a trust? These questions become increasingly important when education planning is part of a larger strategy for transferring wealth between generations.
Looking Beyond Grandchildren
Families planning for grandchildren and great-grandchildren should also consider generation-skipping transfer (GST) tax planning. Transfers to beneficiaries two or more generations below the person making the transfer may raise additional federal transfer-tax considerations. Proper use of trusts and the GST tax exemption can help preserve wealth for future generations while minimizing potential tax exposure.
Think in Generations, Not Just Beneficiaries
A strong estate plan does more than identify who receives property after someone dies. It can create a framework for supporting children today, protecting adult children tomorrow, and preserving opportunities for grandchildren and great-grandchildren in the future. As families change through marriages, divorces, births, deaths, business growth, and changing financial circumstances, estate planning should change with them.
This fall, planning for the next generation should not begin and end with paying for school. Consider it an opportunity is to coordinate education, inheritance, asset protection, tax planning, and changing family circumstances so that the wealth one generation builds can be managed thoughtfully, and efficiently protected, for the generations that follow.