Grandchildren do not have automatic inheritance rights except under certain circumstances. In New York, the most common scenario where a grandchild may inherit is when a grandparent passes away without a Will and the grandchild’s parent is no longer living. This intestate succession is controlled by statute and passes down the bloodline. Pursuant to the intestacy statute, if a married person passes away, then their first $50,0000 and half their assets pass to their spouse with the other half split between any children. But if a child had previously died, then that deceased child’s share passes to the deceased child’s children. If unmarried, all assets pass to their children, again with a grandchild standing in the shoes of the deceased parent.
A grandchild could also inherit assets intended for a parent under a last will and testament. An estate planning attorney drafting a Will for a client always considers who would inherit if a beneficiary dies before the person making the will, called the Testator. In many cases a parent wants their child to inherit and if any child passes away, the assets to pass to grandchildren. This can be written into a Will in several ways. The assets could be left per stirpes, with the share that would have been given to the heir being distributed among the heir’s issue in equal shares. The assets could be left per capita, literally meaning “by heads”, which do not pass on to the next generation if a beneficiary is predeceased, but are instead distributed equally among the living beneficiaries. The Will could also specifically spell out who inherits if a beneficiary predeceases the Testator. Finally, if the Will is silent as to who inherits if a particular beneficiary is no longer living, the asset would pass to the “remote contingent.” A remote contingent is a catchall clause that specifies who inherits if any bequest fails due to the beneficiary predeceasing the Testator. The remote contingent can be multiple individuals and charities. The default remote contingent clause cites to the intestate statue, leaving it to the statute to determine shares. As discussed above, the intestate statute uses per stirpes distribution.
Including a Grandchild in a Will or Living Trust
If a grandparent wishes to provide for a grandchild, they should do so explicitly in a Will or living trust. If grandchildren are under the age of 18, assets must be left in a testamentary trust because minors are not permitted to own assets directly. By directing a grandchild’s share to a trust, the testator can name the Trustee of the trust and determine at what age the beneficiary is to receive the assets. A grandchild can receive income under the trust and the Trustee can distribute principal for their health, education, maintenance or support. The trust can also continue for a grandchild’s lifetime instead of terminating the trust at a certain age. By keeping the assets in trust, the assets remain creditor protected.
Supplemental Needs Trusts for Disabled Grandchildren
If gifting to a disabled grandchild who is the recipient of any means-based government benefits, their share should be directed to a Supplemental Needs Trust rather than outright to the grandchild. This will ensure that they maintain eligibility for their government benefits, while still enjoying the inheritance in a way that can enhance their quality of life. The Supplemental Needs Trust can be drafted within a Will estate at the testator’s death or as a free-standing supplemental needs trust during a grantor’s life.
It is important to note the passing of the Secure Act in 2019 did away with the availability of the lifetime stretch and the incentive to leave retirement accounts to grandchildren. Under the new law, unless a grandchild is deemed disabled, paying out a large retirement account to them comes with negative tax consequences because all the assets must be distributed within ten years and are taxed as ordinary income tax to the beneficiary. It is therefore important to speak with a professional prior to naming anyone other than a spouse a beneficiary under an IRA or 401K.
In assessing who inherits what, it is crucial to consider which assets actually pass through a Will or via the intestacy statute. Certain types of assets, such as retirement accounts and life insurance policies, usually have named beneficiaries, so these assets go directly to whomever was named and never pass through the courts. Beneficiary designations supersede wills and trusts and will pay out to the beneficiary immediately at death. Likewise, any joint account passes to the surviving account holder. Real estate held by spouses or with rights of survivorship also pass to the survivor. Married couples often avoid probate on the first spouse’s death this way, with nothing passing to children. Therefore, estate planning involves knowing which assets pass through a will and which directly to a named beneficiary, to avoid any surprises.
Experienced Help in Estate Planning for Grandparents
Lack of planning can result in undesired and unintended consequences. Whether or not to provide for your grandchildren is not a simple yes or no question. Anyone contemplating how to leave assets to grandchildren should meet with an estate planning attorney to discuss review all options and design a plan that works best for the family.