When we are able, it looks like a "stretch IRA" is the way to go for ensuring some portion of life savings makes its way forward to our grandchildren.
http://www.goodfinancialcents.com/stretch-inherited-ira-for-beneficiaries/
"By naming a younger individual as the beneficiary, he or she will be able to stretch the life of the IRA by making (smaller) required withdrawals based on his or her (longer) life expectancy."
The key to Stretch IRAs would be to not cash in the IRA, let it stay invested and take the Required Minimum Distribution (RMD) each year. There would be a small payout each year and the investment would continue to grow tax-deferred each year. This is from IRS publication 590 and reflects the chart that would be used for required distributions. If a child is five years old, the balance in the IRA on Dec 31 of the prior year would be divided by 77.7 and that is the amount required to be distributed during that year. For $1000 in an account, that would mean $12.87 must be withdrawn during that year. The balance would remain and continue earning more favorable rates until the kids were much older, in case they'd need it for wedding, down payment on a home, etc.
I've added a copy of this chart to our Life Planning Notebook. I also included a copy of Table III (Uniform Lifetime) because that is the chart Mike and I would use to determine RMD when the time comes for us to make required withdrawals.
