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How do we ensure our step-grandchildren don’t inherit our estate?

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My wife and I are preparing our wills.

We are dividing our estate equally between our son and daughter. Our son and daughter are parents to biological children as well as stepchildren.

Our dilemma, for which we’d appreciate your insights, is how to ensure that the assets our daughter and son will inherit pass on to our biological grandchildren alone.

Should our daughter or son predecease their spouse, their inheritance from our estate would pass to our step-grandchildren through their surviving parent’s will.

We’re concerned about this outcome. Any thoughts you can offer to assist us in this regard will be greatly appreciated.

The Grandparents

Dear Grandparents,

A revocable trust is a more flexible option than a last will and testament, and you can set out the terms of that trust and also give the beneficiaries — in this case, your grandchildren — an income instead of a lump sum. This is useful especially if (a) you don’t want your adult children’s spouses to inherit your money and (b) you believe that your grandchildren might give the money to their surviving parent.

You could provide money from the trust for, say, a down payment for a home or your grandchildren’s college education. Alternatively, you could add terms to the trust to encourage good behavior in your grandchildren, such as maintaining a certain grade-point average.

With a will, you also have the option of allocating a percentage of your estate to your grandchildren directly.

Step-grandchildren are not legal beneficiaries. “In most jurisdictions, including Canada, the U.S., and the U.K., step-grandchildren are not automatically included in a will,” according to MacMillan Estate Planning, which has offices in all of those jurisdictions. “Unless you (or your child) adopt a step-grandchild, they are not treated as a member of your family by the state.”

MacMillan adds that they’ve worked with many clients over the years. “Some wish to include their step-grandchildren as fully as their biological and adopted grandchildren, and others prefer to leave their step-grandchildren out of their will. Both options are entirely valid, and it is our goal to create an estate plan that prioritizes your individual wishes for your unique family.”

A revocable trust, also called a living trust, has the added benefit of avoiding probate, which can be an expensive, public, sometimes legally fraught and time-consuming process. Trusts are commonly used by elder family members to skip generations and also, as in your case, to leave money to grandchildren when they reach a certain age, such as 25 or 30. 

As Harry S. Margolis, a Massachusetts estate-planning and elder-law attorney, wrote on MarketWatch, trusts are handy for estate-tax planning. “Many types of trusts are used to avoid or minimize estate taxes. Credit shelter or QTIP trusts make certain that assets left by the first spouse in a couple to die don’t get taxed upon the death of a surviving spouse.”

Needless to say, all of this should be done with the help of an experienced trust and estate attorney. Good luck with your estate planning and — in the event you decide to be transparent about your plans — with the subsequent discussion with your family. You are, of course, under no obligation to share your intentions with anyone. It’s your money, your estate plan and your business.

But please be mindful that, ultimately, there is only so much control you can exercise over your estate after you’re gone.

Yocan email The Moneyist with any financial and ethical questions at [email protected], and follow Quentin Fottrell on Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. 

By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

The Moneyist regrets he cannot reply to questions individually.

More from Quentin Fottrell:

‘We grew up poor and financially ignorant’: My children are 14 and 16. Is it too late to save for their college education?

My brother-in-law has menial jobs, borrows money and lives with his parents. Will I be his ‘keeper’ after his parents are gone?

The cable guy introduced my 90-year-old stepmother to a new ‘friend,’ and she’s gotten fleeced. Am I legally responsible if she ends up destitute?



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