Helping Grandchildren Financially

Many grandparents want to leave a legacy behind to help their grandchildren

By Deborah Jeanne Sergeant

An inheritance gift of money may not be the best thing to assist your grandchildren long-term. Fortunately, other financial strategies can help your gift provide a lasting legacy that will benefit your grandchildren for many years to come.

“Each situation is unique,” said Jeff Feldman, Ph.D. and certified financial planner with Rochester Financial Services in Pittsford. “Some people I advise to give a gift to the parents and usually when you’re giving to your kids, give equal amounts to your children and let your kids decide how best to use that money to give to the grandchildren.”

Your adult children may have a better understanding of your grandchildren’s needs and how they may need help, such as a reliable car to drive to a first job or a down payment on a house.

It may seem fair to give the same amount to each child or grandchild. However, some may not need financial help. Feldman advises talking frankly about your intentions, so your adult children understand your motivations.

“You have to decide what you’re comfortable with and what the grandchildren are comfortable with,” Feldman said. “I’ve had situations where a grandparent has three children and one a doctor and two are not.”

He advises giving without strings attached, such as if a grandchild wants money to start a business and the business fails. It’s vital to only give what you really can afford to lose and realize that the lessons learned in the business attempt may be the real gift.

Grandparents can open a custodial account for grandchildren so that when the child turns 18 or 21, the money becomes theirs.

“You can show the child how it grows over the years,” Feldman said. “It might be a nice savings and educational mechanism.”

Tomás Gonzalez, attorney, assistant professor and coordinator of the paralegal-legal studies program at Finger Lakes Community College in Canandaigua, recommends looking into New York’s 529 college savings plans, especially if your grandchildren are small and the funds would have a long time to grow.

“They can be very beneficial,” he said. “Be careful about giving someone a flat-out gift. It isn’t necessarily the best option.”

New York’s 529 plan offers a means of saving, growing and giving money tax-free. The fund earmarked for college, but the grandchildren can reside and attend college anywhere in the U.S. Grandparents control the fund until the gift is complete when the grandchildren go to college. If any grandchild doesn’t go to college, the funds may be rolled into a Roth IRA. The funds grow tax-free as well.

“An educational trust can be of benefit,” Gonzalez said. “The only thing is there are higher administrative costs and you can’t revoke it without the consent of the beneficiary.”

Gonzalez said that he knows of creative grandparents who have bought for their grandchildren a house near their college so they can live rent-free while studying and then flip the house when they’re done with school, so they buy a house where they want to live.

“The biggest key is communication with the parents or guardians,” he added. “Make sure what you’re doing complements what they’re doing and not at cross-purposes. Talk with them early on. If you’re going to invest, start early so there are sufficient funds to start a business or go to college or help them buy a house.”

Planning long-term with your adult children and grandchildren is a good step, along with seeking professional advice along the way. Plans that sound solid may not be as good as you thought.

“Meet with a qualified financial adviser to come up with an actual plan to accomplish the goal that you have in mind,” said Phil Provenzano, certified Social Security specialist and financial adviser with The Financial Guys in Rochester. “Brainstorming is one of the most beneficial ways to accomplish this goal. I had a client this week that came in with this same question and an adviser that he spoke with gave him one and only one way to do this.”

Provenzano said that tax liability, income and goals all differ among clients. A personal conversation with an adviser is the best way to find a solution that fits.