As you plan your estate, you may want to leave part of your inheritance to grandchildren. This can be done a number of ways, depending on whether your grandchildren are minors or adults. When you want to plan for the financial future of your grandchildren, you have some choices. You can name your grandchildren as beneficiaries of a life insurance policy, add them to your IRA as equal beneficiaries, or set up a trust that will be funded by your assets after you die. You can also prepare for the education of your grandchildren by setting up a 529 plan in order to reduce the taxes your estate will have to pay.

Grandchildren that are Adults

If you have a life insurance policy that will be payable upon your death, you can name your grandchildren as the beneficiaries. You can name each grandchild and leave a percentage of the policy to each one. The adult grandchildren will receive their share rather quickly once you pass, and the proceeds do not have to go through your estate. The grandchildren receive the money directly from the insurance company and the money is not subject to any income taxes.

When You Have an IRA

You are allowed to leave part or all of your retirement accounts to anyone that you choose, including your grandchildren. Since the only person that can roll your IRA into their own account is a surviving spouse, your grandchildren may have to start taking disbursements from the IRA that you established right away. But, your beneficiaries will have to pay income tax on the money that they receive from the IRA disbursements. The IRA is also taxed federally as part of your overall estate tax that is calculated based on the entire value of your estate.

Setting Up a Trust

Many grandparents set up a trust for their grandchildren in the event that they die before the grandchildren reach adulthood. A trust can be funded with any number of assets, and can be dispersed in any capacity the grandparent stipulates in the trust. This can be a trust that remains only until the child reaches adulthood, or it can be one that remains until there are no longer assets to distribute.

When you want to leave money to your grandchildren but you aren't sure what to do, it's time to meet with an attorney like David R Webb Attorney to discuss your estate planning options.