Dear Mr. Premack: My son and his wife have just had their first child. I’m a grandparent at what I feel is the young age of 52. I am in the prime of my work years and my income is steady, while my son is early in his career, has a much lower income than me, and now his expenses are very high. As a grandparent I want to help financially, but am unsure of the rules. What are some of the things I can legally do to help with their finances? – H.G.
Congratulations! I can feel your pride in your son and his family in your words and in your desire to provide what help you can afford to give.
Now that your son and his wife are parents, they have a huge new responsibility. Yes, they have the daily and nightly duty of caring for their child, but they have the long range responsibility of raising their child as well. Part of that responsibility is to plan for their absence or incapacity. What if they were killed in a car accident or some other unexpected tragedy?
They must make Wills that have a plan for the long-term care of their child. Often, this will include creating a trust inside the Will in which they appoint someone to manage the child’s inheritance until the child is a mature adult. At a minimum, it should include appointment of a legal guardian for the child, responsible for housing, feeding, educating and making medical decisions until the child turns 18.
They must make durable powers of attorney and medical directives for themselves. If one of them should become incapacitated (for instance, if your son was injured in his workplace) his wife needs legal authority to handle his ongoing business. Can she access his 401K? Not without a proper durable power of attorney. Can she borrow money to make repairs to their house after a storm? Not without a proper durable power of attorney. Can she speak with his doctor and give instructions for his long term care? Not without a proper medical power of attorney.
How can you, the grandparent, help with this legal planning? Two ways. First, they likely don’t have the life experience to know that they need these legal documents and planning. You do. Explain the risks they face and the need for this planning. Second, they likely cannot afford a good lawyer. You can, so offer to pay their legal fees. Don’t let them go to the internet, which may be their first impulse. Get them to an experienced certified elder law attorney. This is a responsible and caring gift you can give to them.
Another thing you can do to help: set up a fund for you grandchild’s college education. This can be in the form of a Uniform Transfers to Minors account with your son as custodian, a 529 plan, a Coverdell Education Savings Account, or via Education Savings Bonds. College will cost more than you or your son can begin to imagine, and the load is lightened if you start to save as soon as possible.
Something else you can do to provide long-term assistance: buy some life insurance on your son (or help him buy his own policy). If he dies, the insurance money goes to his beneficiaries free of income taxes, and is only subject to estate tax if his estate exceeds the exemption amount (which in 2012 is $5 million). The proceeds from life insurance can help pay his mortgage, pay your grandchild’s college costs, and fill the financial gap that his death would leave in their lives.
Finally, and this is a simple suggestion: help with a monthly stipend if you can afford it. The birth of this grandchild has increased your son’s monthly expenses dramatically. They have more medical bills, higher food bills, new expenses for diapers and clothing, etc. Federal law allows annual gifts up to $13,000 per recipient per donor. If you can supplement them with a small stipend to relieve some of that burden, they will no doubt be very grateful to you.
Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, January 23, 2012