Baby Steps for New Grandparents

Planning Reflection | October 11, 2024

Earlier this year, I welcomed my daughter into the world, and my parents became grandparents for the first time. Over the past year, we worked together, gathering cute baby outfits and assembling diaper-changing stations. We also updated our financial and legal arrangements in case something unexpected happens to us. As our daughter flashes her first smile and takes her first steps, I am comforted by the steps we took to support her future.  

Bonding with a grandchild can be one of life’s most precious experiences, and properly planning for their future can be a deep expression of love. Taking a few steps now can be life-changing for years to come. Expanding on a previous planning article written for parents, I’m sharing practical ways grandparents can plan for their new family member’s future.

Your presence as a grandparent is special and unique, and if this is your first grandchild, a new experience with new opportunities. You may be excited to bond with your new grandchild and give their parents some relief. How does this plan fit into your current life? You may have your family living nearby, or you may need to budget for flights and lodging. Whether you still work or are retired, you may have other commitments outside of the home and an established and treasured set of friends.  

A grandchild often rearranges priorities and brings a good deal of change to grandparents’ day-to-day life. If you are partnered, the changes need to be navigated together. It is not unusual for grandparents to consider moving closer, but grandparents may not both be ready for that, especially if it means leaving a social network or moving to an area with a higher cost of living. Openly discussing these questions will give you an idea of what options are on the table.  

Beyond finding ways to spend quality time with your grandchild, grandparents may want to help financially to ensure a grandchild’s future. For example, if college is part of the plan, the money you set aside today can help your grandchild graduate with less of a debt burden. Jumpstarting savings early with a 529 college savings plan provides compound interest and tax-free growth. Anyone, including a grandparent, can open and fund a 529 account for the benefit of a new baby. Investments in the account grow tax-free if spent on qualified education expenses for the child.[1] If you live in a state that offers tax benefits, and unfortunately, California is not one of them, contributing to a 529 account may also lower your state income taxes.  

Revisiting your cash-flow planning can also help you understand if you will be financially comfortable as you age and can plan to provide other kinds of support.  Those might include helping pay for extracurricular activities or private school. It can also include giving gifts once your grandchild reaches adulthood for additional study, buying a house, or starting a business. You have experience, and you understand how welcome additional gifting may be for new parents in the midst of juggling family and careers.

As you think about your new grandchild growing into adulthood well beyond your lifetime, what legacy would you like to leave them? The birth of a new family member is an ideal time to review your will or trust provisions, as well as any retirement plan beneficiary designations.  

While many family legacies are given primarily to adult children, it isn’t uncommon for grandparents to make a specific gift to grandchildren. Revising your estate plan ensures that no one is left out, and a financial advisor or an attorney can help you create a plan that is customized to your family. For example, if you would like your grandchildren to have funds for education, a house down payment or to start a business after you are gone, you could include terms that provide for that with appropriate guidance from their parent or another trusted adult.  

The arrival of a new child is a life transition for grandparents and offers the chance to more broadly assess your own plans for the future. Even though you may not yet be old in years, you have now officially become an elder – and you have a lot to offer. Be thoughtful about what the different generations need and discuss those needs openly with your family. At North Berkeley, we guide our clients as they plan to support a new generation, taking into account their personal values and circumstances. We believe one of life’s greatest treasures is caring for your family as it grows, and we are honored to help our clients do that.   

Resources:

[1] IRS Qualified Tuition Program https://www.irs.gov/taxtopics/tc313