Leaving Money to Your Nieces and Nephews – Read This First


Many of my clients desire to leave inheritances for their nieces and nephews, especially when they have no kids of their own and they feel close to and protective of their nieces and nephews. And what a beautiful thing to do!

There are some things to think about, though, as you’re figuring out what to leave behind and how to do it because there are healthy ways and dangerous ways. Here are my thoughts on the matter.

Always get good personalized advice from an estate planning attorney. Please don’t take legal advice from just anybody.


  1. Use a Revocable Living Trust as the cornerstone of your planning to provide for clear and healthy transfer of your savings for your nieces and nephews.

If you haven’t already, consider using a revocable living trust (an “RLT”) as the focal point of your estate planning. The beauty of this style of planning is that you can specifically provide for the gifts you desire to your nieces and nephews in a manner that is healthier for them and their parents and will not undermine their parents’ authority should they come into money in their own name at a too-early age. Remember, most young people are not financially mature until their late 20s or 30s.

RLTs are an excellent tool for many families—for their own sake and for the sake of the beneficiaries who may need help and guidance as they learn to manage their own money, their own impulses, chart a path into their earning years and then start walking that path. Learning to be in good relationship with money takes time, effort, and a wise advisor to support that learning. Having a trust set up for your nieces and nephews with their parents as their trustees is a good way to provide the mechanisms for that learning.

However, some parents are not wise (or are downright grifters) with money themselves. Seeing their children inherit from you, ne’er-do-well parents might pressure their own children to give them some of that money. Your planning has to take into account all the relationships involved, all the personalities, and address the possible negative outcomes associated with giving someone money, including problems like “failure to launch” and the aforementioned grifter parent.

  1. Do not open UTMA accounts for your nieces and nephews if the amount you’re gifting is significant.

UTMA (Uniform Transfer to Minors Act) accounts are custodial accounts for minors for which an adult is a custodian until the child reaches the age of majority (between age 18 to 21 depending on the state you’re in). UTMA accounts belong to the minor who is, by operation of law, required to receive the title on their account no later than 21. That means, whatever condition the child is in, they will take that account in their own name. There are no safeguards on UTMA accounts when children become legal adults. There are no parents making sure they’re not going to go to Vegas and blow it up their nose or spend it on that Bumblebee Camaro they’ve wanted since their childhood obsession with the Transformers.

These accounts are designed to help children learn to manage their own money as they grow up. When they earn their own money, by all means, put it in a UTMA account where they can save it and spend it with parental guidance. But if you’re planning to save a rather large load of cash, don’t put it in one of these accounts. Do not ask your banker about this as they will just coax you into a UTMA account so as to keep your cash with them.

  1. Don’t use your nieces and nephews as tax havens.

If you’re thinking you can gift assets to your nieces and nephews, or any family member, for the sole purpose of sticking it to Uncle Sam, please don’t. Just don’t. Using others to save on your taxes is an unethical motivation for gift giving. It makes people into objects for your selfish use and you may have no idea of (or care for) the emotional and psychological impacts of that decision on them. I have seen plenty of recipients of inheritances turn out very badly. Think…triggering of a latent mental illness, feelings of entitlement, job instability, self-deception, addiction.

If not paying Uncle Sam is more important to you than ensuring your family receives their inheritance in a good, healthy, and moral way, please take some time to reassess your priorities and the effect of those priorities (money ahead of people) on your family.

  1. Be cautious with 529s and put them in the name of your trust or name the child’s parent as a successor owner.

529 Accounts are great for the limited purposes of funding someone’s education and potentially reducing your own income taxes (see #3 above). However, you need to understand the limitations of 529s and the potential impacts on your family before your put your money in them. If you die before your niece or nephew uses the 529 you saved for them, do you know exactly how this account would be handled as part of your estate? Make sure to tell your estate planner that you have these accounts set aside for your nieces and nephews.

If you have a trust (see #1 above), it’s best to put these accounts in the name of your trust if the custodial company permits it. If not, name their parent as the successor trustee of that account.

  1. Consult with their parents if under the age of 30. Consult with them if over the age of 30 (this age may vary depending on their financial maturity).

There’s nothing in the estate planning bible that says you can’t confer with your beneficiaries’ parents about how they might want to see their children receive an inheritance. Let them know you’re considering a trust for their kids and ask what the parent might use the resources for, what they might invest them in, and what the child’s development is like with respect to finances—which is usually zilch because we don’t prioritize financial education in our country.

If your nieces and nephews are of age, talk to them about your ideas, framing the conversation with a disclaimer that “if there’s anything left at all…” You can ask them what they might use the inheritance for, if they’re married, you can ask about their preference for an outright gift or a gift of assets in trust.

  1. Do not leave the gift intended for your niece or nephew to your sibling directly and then tell them it’s for their child.

Very important safety tip. Don’t name your sibling directly as the beneficiary of a gifted account or life insurance that you intend to be for your nieces and nephews. When you do this, you expose your gift assets to your sibling’s liabilities—including their student loans, their business risks, and their everyday errors and omissions.

Again, this is where a trust for your niece or nephew is most useful. Give your estate plan a little extra effort to ensure that gifts to your family members are provided in a trust, where they can be isolated away from other people’s liabilities and where they can be carefully managed and disbursed in a way you would want and that does not short-circuit your nieces’ and nephews’ development to adulthood.

Similarly, if your sibling tells you that they’re leaving their life insurance to you for their own children, please stop them in their tracks and tell them to talk to an estate planner right away.

  1. Have Your Estate Planning and Financial Documents Thoroughly Reviewed

When you update your estate plan, make sure all your estate planning documents are reviewed,  accomplish your estate planning goals (they often do not!) are cross-referenced, and do not contradict one another.

I can’t emphasize enough how important it is to have current estate planning documents. And this is especially true if you have savings set aside for nieces, nephews, great-nieces or nephews, etc.

If you would like a professional opinion on how a plan for gifts to your nieces and nephews in the context of your own family and assets, call us to request complimentary a 1-Hour Discovery Session. We can help you identify what needs to be done to make sure your gifts to your nieces and nephews happen the way you want without undue strain on your family.


About the Author - Martha Hartney

A later-in-life attorney, Martha Hartney opened the practice in 2010 to serve the people she loves because she is committed to helping moms and dads bring their greatest gifts into parenting fearlessly and with joy and making sure children are completely cared for if something happens to their parents.

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