Aflac: 5 Steps to Creating a Lasting Financial Legacy for Grandchildren

A big goal for many grandparents is to give their children and grandchildren added financial stability and security. One common way to do this is to pass down assets so grandchildren can inherit wealth. However, there are plenty of other strategies grandparents can use to help secure their grandchildren’s financial futures. This article describes five steps seniors can take to help create a lasting financial legacy for their grandkids.

1. Create an estate plan

An estate plan spells out one’s wishes for asset distribution, guardianship, end-of-life healthcare, and similar matters. Documents in an estate plan can include:

• Last will and testament: The will lays out how one wants their assets distributed after passing away and names an executor who follows this plan. One can also name guardians for minor children, if needed.
• Healthcare power of attorney: This allows someone to make medical decisions, such as treatment or medication, if the person becomes incapacitated.
• Durable power of attorney: This allows someone to make financial decisions, such as managing bank accounts or filing tax returns, if the person becomes incapacitated.
• HIPAA authorization: This grants specified individuals the ability to access medical records and discuss the person’s health with providers.
• Letter of intent: This lets the person give non-legally binding instructions and information, such as estate planning decision explanations or funeral wishes, to help their estate plan get carried out accurately and efficiently.

People should review and update their estate plans regularly to ensure their estate stays aligned with their wishes.

2. Get a life insurance policy

Life insurance pays a death benefit to beneficiaries when the policyholder passes away. This death benefit is not taxed as income to the beneficiary. Furthermore, if structured properly in an irrevocable life insurance trust (ILIT), it may not count toward the policyholder’s estate tax threshold.

However, permanent life insurance, which lasts for life, allows grandparents to help their grandchildren while alive. This is thanks to the cash value of life insurance, which grows with each premium payment and earns tax-deferred interest. Policyholders can borrow against or withdraw from this to help their grandchildren with nearly anything. The policyholder is not out of luck if they no longer need the policy. They can surrender it and receive the cash surrender value of life insurance, recouping premiums paid.

3. Invest in their education

Education can be expensive. Therefore, one of the greatest gifts grandparents can give their children and grandchildren is financial help with their education costs. For example, a senior’s children may have kids who will go to college someday. The grandparent can gift money to their grandchild’s 529 plan if it is already set up, adding to college savings and helping to reduce the financial burden on the grandchild or their parents.

Educational trust funds are another way to invest in education. Grandparents can move assets into this trust, name grandchildren as beneficiaries, and designate a trustee to manage the trust. The trustee can then disburse funds to the beneficiaries when needed for educational costs. Grandparents interested in educational trusts should work with an attorney to structure the trust properly.

If the grandchild is already in college, grandparents with sufficient financial resources could help cover tuition or living costs. This can help provide monetary relief for the grandchild by reducing their need to get student loans. It may help them get better grades by allowing them to work fewer hours and use their extra time to study.

4. Start them off with savings

Starting a savings account for grandchildren helps them build savings early on. It also gives them an opportunity to learn prudent financial habits that they will need to succeed as an adult. Several savings and investing accounts exist to help start grandchildren on the right foot:

• Joint savings accounts: Grandparents and grandchildren both own the account and are allowed to transfer funds to it. However, the grandparent can supervise the child and restrict activity as needed.
• Custodial accounts: Custodial accounts let grandparents invest in stocks, bonds, and other securities on the child’s behalf. The child can help make decisions, but the grandparent is the only one who can initiate a transaction. This offers a way to teach grandchildren about responsible investing while helping them start adulthood with investments.
• Custodial Roth IRA: These are Roth IRAs that work like custodial accounts in terms of management. That means contributions from the grandparent or grandchild are after-tax, but the child gets to enjoy a longer period of potential investment growth and qualifying tax-free withdrawals in retirement. This can help grandchildren start their retirement savings early.

Regardless of the account type, giving grandchildren a savings or investment account gives them more time to experience compound interest and grow wealth.

5. Teach them financial literacy

Financial literacy is foundational to the other ways grandparents can help their grandchildren. By teaching their grandchildren financial literacy, they help grandchildren prepare to manage their own money as adults. Grandchildren can make the best use of the savings and investments they acquire as children and make the transition to financial independence easier down the road. It can also help them understand what to do when their grandparent passes away and the grandchild receives an inheritance and life insurance death benefit.

Grandparents can teach their grandchildren financial literacy using age-appropriate books, games, and online resources. They can also draw on their own experiences with finances to give their grandchildren real-life lessons and examples.

The bottom line

Grandparents can make a huge financial difference in the lives of their grandchildren. They can start by creating an estate plan and considering life insurance to provide a death benefit payout for their children and grandchildren. Grandparents can invest in their grandchildren’s education and help them save and invest across various custodial accounts. Grandparents can also teach financial literacy and help grandchildren build good habits. These steps can allow grandparents to help set their grandchildren up for a happy and stable financial future.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.

Aflac life plans – A68000 series: Term Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Not available in Delaware. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.

Aflac Final Expense insurance coverage is underwritten by Tier One Insurance Company, a subsidiary of Aflac Incorporated and is administered by Aetna Life Insurance Company. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (NAIC 92908).

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY, VA or VT. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations, and exclusions.

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Contact: Angie Blackmar, 706-392-2097 or [email protected]