A grandfather of five grandchildren and one great-grandchild inquired if I could assist him in setting up a wealth-transfer to his several grandchildren. “I have money in my bank account that I’m not using, am not likely to use, and am earning next to no return on!”, he stated, opening the discussion. “I want to set aside $XXXXX.XX per grandchild and allow it to be a lifetime wealth account for them, but I don’t want to provide direct access to the funds, lest they just withdraw and spend them.”, he instructed. The other stipulation that this client gave me was that he wanted “… to write one check, fund the account, and be done with it.”
While a bit of a challenge, the largest hurdle for me was the paperwork in preparing two types of account applications for each grandchild. One account provided the risk-free growth of funds away from a Wall Street Market downturn, while providing tax-free access to lifetime wealth away from the government controlled tax-deferred 401(k) and IRA system which limits your access to your wealth during your lifetime. The other account allowed the client to fund with one check an account that would preserve the value of his money in earning a fixed rate of interest while making regular periodic disbursements into a linked account which provided the other benefits. His money would be growing in two different places which could each name independent custodians, which, at age 85 would eventually come into play.
After setting up the accounts on his grandchildren, this client eventually lost his battle with cancer and advanced age. I’ll miss his stories of his service in World War II and the stories of how he convinced his beautiful wife to marry him, a point he never lost an opportunity to emphasize while in my company, a confirmed bachelor!
After his passing, we were able to work with the family to transfer ownership of both the funding accounts and wealth accounts to the owners according to my client’s final wishes. Where older grandchildren were more accountable and financially stable, their wealth accounts were transferred to them directly, and the funding accounts (which still held most of the funds) were entrusted to their parents (the client’s children). In the cases of minor children or adult grandchildren that had not proven themselves quite so financially stable, ownership of both accounts were transferred to the parents who could decide an appropriate time to transfer ownership to their children.
Conclusions: Working with the types of accounts to which I have access can offer a great deal of control for a client and family to maintain control and custodianship of funds which remain removed from tax exposure. In addition, there are few other accounts that can be transferred among family members with such ease, and with tax-advantaged benefits intact.