Giving money to grandkids

Dear Liza: My Dad wants to start giving money to my children each year. Should I to hire a lawyer to draft a trust for this money? That’s so nice of your Dad. And smart, too. He can give $13,000 each year to each of your children (twice that if he’s married and his wife wants to make such gifts), free of any gift tax. Over time, this can really add up. Lucky you. So, here are your Dad’s choices: if he wants to keep it really simple, your Dad can give the money to your kids and you can set up a custodial acccount at a local bank or brokerage company. This is sort of like a generic, off-the-rack trust, established by state law, with standard terms. In many states, a custodial account lasts until a child reaches the age of 21. Before then, the custodian (probably you) can use the money for the minor (school tuition, summer camp, computers). At 21, the money is the child’s money and they can use it for whatever they would like to use it for (trip to Paris; race car business; college). If your Dad wants to limit the use of this money to just college, he can make these gifts to 529 Plan accounts in your children’s names. This money grows tax-free; and can be withdrawn tax-free, provided it’s used for an approved educational expense (like college). If your Dad would like the money to remain in trust past the age of 21, or would like to restrict its use to only certain things: only to buy a house after the age of 30; only for travel to exotic destinations; to stay in trust until a child is 35, that’s when an attorney should get involved. A custom-drafted trust can have restrictive terms and last for as long as the person who establishes the trust wants it to last.