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The welcoming of a new child into the family is a great time for parents to update their estate plan to include their bundle of joy. But what about a new grandparent? The question always arises: Should I leave anything for my grandchildren?
The short answer is that you don’t have to: A grandparent is under no obligation to leave grandchildren anything in their Will. There is a narrow exception if the grandparent has provided financial support to their grandchild, which can give rise to a support obligation, but grandparents otherwise have free rein to do as they please when it comes to gifts to grandchildren.
That said, we do find that our grandparent clients are increasingly wanting to give something for their grandchildren right away. As life spans are longer, a grandparent may not want their grandchild to wait until their parent passes away to enjoy their inheritance. Rather, they would like to see them use this money to get a head start, maybe by paying for school tuition or a down payment on a home.
A common and relatively easy gifting strategy is to pay a cash legacy to each grandchild on the death of the grandparent. This way, they can get some money right away instead of having to wait for the death of their parent.
However, in doing so you need to be mindful of the number of grandchildren you have – or will have – at the date of your death. Even small legacies can add up when there is a large group of grandchildren. Legacies are paid before anything is paid to the residual beneficiaries, so depending on how many grandchildren you have and what the value of your estate is, there could be little or even nothing left for your children or other residual beneficiaries.
As well, depending on the age of your grandchildren, a trust may be needed to hold the legacy until the grandchild reaches a financially mature age. Trusts are useful tools, but in some instances, they may not be necessary and can be quite burdensome. If the size of the legacy is relatively small, the cost of the administration of the trust and annual tax compliance will deplete the gift and may end up being more than what the grandchild receives.
If you don’t want to name your grandchildren directly in your Will, don’t underestimate the power of a letter of wishes.
As we discussed in previous blogs, letters of wishes can be useful planning tools, and a letter to your child explicitly saying that you would like a set amount from their inheritance to be used for the benefit of or preserved for your grandchildren can have the same weight as including a gift directly in your Will.
Although no legal obligation is created, your child may feel they have a moral obligation to follow your wishes.
Here are a few earlier blogs on letters of wishes you may find handy:
If you do decide to name your grandchildren in your Will, thought should be given to family dynamics and how modern families now come to be. Blended families are increasingly common, and consideration should be given to if, or how, your step-grandchildren are incorporated into your estate plan.
You may want to limit your gifts to your lineal grandchildren and not include any step-grandchildren. In doing so, you should prepare for the potential of hurt feelings, not just from the left-out step-grandchild, but perhaps also from your child who has treated their step-child as one of their own.
In deciding whether to leave your grandchildren anything, you should also consider their parents and what their wishes may be.
A grandparent may see their grandchild as perfect and responsible, but the parent may have a different perspective. A parent may not be too pleased that their child is receiving a large sum of money without any restrictions or at an age they do not feel appropriate.
Having these open and honest discussions with your children are important so you can fully see what the impact of leaving money to your grandchildren could be. It also may lead you to structure a gift in the same manner as the child is structuring their Will, so there is an overall consistency among the estate plans.
One point of discussion is whether there should be an unequal split among the children because of an uneven number of grandchildren.
A client may want to double the inheritance given to the child with four children of their own versus the child with only two. Or perhaps one grandchild may need a little more help financially because of their parents’ circumstances. The rationale behind this is to hopefully create equity among the grandchildren when it is their time to inherit.
With this type of planning, you need to be aware of the possibility that there may be future grandchildren after the date of your Will that may affect the overall distribution plan. The Will can be drafted in a way to provide for future grandchildren.
As well, what happens if a child doesn’t have any children of their own – they may feel left out or hurt that they are receiving less than their siblings? One option is to consider counting legacies to a child’s children as part of their share. It is often recommended that with this type of planning a companion memorandum is prepared outlining the rationale for the uneven distribution to hopefully avoid any hurt feelings.
Instead of leaving something in your Will, you could always consider gifting to your grandchildren while you are alive. This way, you have more control on how the money is to be used and can ensure greater equality among the family, without having to deal with any of the potential problems described above.
Another option is to gift certain personal effects that have sentimental value rather than monetary value to show your grandchildren you are thinking of them.
Ultimately, while some would say a grandparent’s only job is to spoil their grandchild, there are other ways to spoil your grandchildren without naming them directly in your Will.
Stephanie Battista is a partner at O’Sullivan Estate Lawyers. She practices exclusively in estate and trust law, focusing on all aspects of estate planning and estate administration in order to provide clients with sound and helpful legal advice. She advises clients on their succession plan including wills, trusts, powers of attorney and domestic contracts. She also advises executors, trustees, and attorneys on their duties and obligations, and provides guidance through the complexities of the estate administration process as well as estate and trust accounting. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.
Notes and Disclaimer
Content © 2023 by O’Sullivan Estate Lawyers LLP. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.
This article is the opinion of the writer and is meant to be general in nature, limited to the law of Ontario, Canada. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.
Image: iStock.com/fizkes
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