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.
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.