When creating an estate plan, most parents choose to leave their assets to their children – or, in the case of married parents, to the spouse first, then to the children. If there is more than one child, the estate is usually divided equally among them. Grandchildren typically only inherit directly from grandparents if their parent is deceased.
However, some clients ask about including grandchildren in their estate plan, even while all their children are still living. The reasons for this vary, but the most common include:
- Children are already wealthy and are concerned about their own estate tax exposure
- A desire to benefit grandchildren before the death of a child
- Specific concern for funding a grandchild’s college education
- Children going through a divorce, bankruptcy, or facing creditors
- Having a closer relationship with a grandchild than with a child
If you are considering including your grandchildren in your estate plan, here are some important factors to keep in mind.
1. Generation-Skipping Transfer (GST) Tax
One of the most important considerations when leaving assets to grandchildren is the Generation-Skipping Transfer (GST) Tax. The IRS imposes this tax to prevent wealthy individuals from bypassing estate taxes by transferring assets directly to their grandchildren (skipping over their children). This tax can be as high as 40%. As of 2025, there is a GST lifetime exemption of $13.99 million, meaning you can transfer up to that amount to grandchildren and more remote descendants over your lifetime without incurring the GST tax. Your estate planning attorney can help you structure your estate plan to maximize the benefit of this exemption, using strategies like lifetime gifts or specific testamentary dispositions.
2. Children with High Net Worth
If your children are already financially secure and engaging in tax planning to minimize their own estate taxes, they may ask you to leave your estate to their children (your grandchildren) instead. If you choose this route, GST tax becomes a significant concern. To minimize this tax, you could use dynasty trusts, which allow you to allocate GST exemptions strategically.
Alternatively, if you want to leave your estate to your wealthy child, that child could either keep the assets in trust or “disclaim” their inheritance in favor of their children (your grandchildren). The disclaimer must be within nine months of your death (for IRS purposes) and the child must not have accepted the inheritance in any way.
3. Children with Creditor Issues, Bankruptcy, or Unhappy Marriages
If you are concerned that your child’s creditors or ex-spouse may lay claim to his or her inheritance, leaving funds directly to your grandchildren may help avoid those issues with a particular child. One way to do this is by setting up a trust for the grandchildren which their parents have no access to. This approach helps to protect funds for the benefit of your grandchildren, not your child’s creditors or estranged spouse.
4. Percentage Division of Estate Between Children and Grandchildren
In some families, grandparents choose to divide their estate between their children and grandchildren. While this might seem like a fair approach, it can lead to tensions. For example, if Child A has two children, but Children B and C have none, dividing the estate into five shares may cause resentment from Child B and Child C that Child A’s family is receiving a larger portion. Additionally, adding more parties to an estate settlement agreement increases the chance that when it is time to sign off, one party will be disabled, or not speaking to family, or hiking in Peru, or a member of a religious order that requires a vow of poverty, all of which can add to legal costs and delay final distribution of the estate. Parties receiving a percentage of the estate generally have standing to question all the actions of the estate fiduciary in efficiently collecting assets, paying expenses and any other issues that affect the amount left for distribution to beneficiaries.
5. Grandchildren Receive Cash Bequests, and Children Divide the Remainder
Another strategy is to leave a modest specific cash bequest to each grandchild, with the remainder of the estate being divided among the children. This approach has the advantage of equalizing distribution of the majority of funds among the children and simplifying the settlement process: once a grandchild receives the amount of cash stated in the estate plan, the grandchild has no additional right to be involved with the final estate settlement.
6. Gifting to Grandchildren During Your Lifetime
Rather than including grandchildren as beneficiaries in your will, you could give them lifetime gifts. This can be a good way to balance the desire to benefit grandchildren while treating all your children equally under your estate plan. Some options include:
- Annual Cash Gifts: You can give up to $19,000 per year per grandchild (as of 2025) without having to file a gift tax return. If you are married, you and your spouse can give up to $38,000 per grandchild annually, and if the grandchild is married, include his or her spouse for a total to the grandchild and spouse of $76,000 per year ($19,000 x 4).
- Uniform Transfers to Minors Act (UTMA): A UTMA account allows you to transfer assets to a minor, with you or a guardian acting as the custodian. The funds must be transferred outright to the child at the age of majority.
- 529 College Savings Plans: You can contribute to a 529 plan, which is specifically for educational expenses. In 2025, Contributions up to $95,000 per grandchild ($190,000 for a married couple) can be front-loaded over five years without using any of your lifetime gift tax exemption amount, and the funds grow free of income tax when used for qualified education expenses.
- Irrevocable Trusts with Crummey Powers: An irrevocable trust allows for customized distribution terms, but requires that the grandchild (or their guardian) have the right to withdraw a certain amount of each contribution to the trust each year. These trusts can last for the lifetime of the grandchild, offering flexibility in terms of how and when funds are distributed.
Our estate planning attorneys provide high-net-worth individuals with legal and tax planning advice for their estates, trusts, business activities, investments and insurance. At the core of our Private Client Services practice is developing a close, confidential relationship with our clients through which we learn and understand their goals and objectives for transferring wealth to future generations. This wealth transfer takes place either outright or via managed trusts, preserving wealth by minimizing income, estate, gift and generation skipping transfer taxes, and directing the disposition of assets during life and after death, while protecting assets from creditors.
We welcome the opportunity to assist you in developing and implementing estate planning strategies to achieve your goals including leaving your estate to your grandchildren.
Learn more about Attorney Marjory Selig.
This article does not create, and should not be construed as creating, an attorney-client relationship.