Planning for the future of your grandchildren? Few steps are more important, or helpful to your own adult children, than helping with college funding. To help fund the ever-increasing expense of obtaining a future college degree, it is worth exploring some financial tools now.
A recent piece in ElderLawAnswers.com titled “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?” examined the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA).
Typically, these tried-and-true “granddaddies” of college savings accounts are established by parents on behalf of their children. Thereafter, the parents and grandparents make gifts to the accounts thereby creating a powerful college fund in Overland Park and elsewhere.
Nevertheless, look before you leap. For example, “uniform” is something of a misnomer when it comes to UGMA and UTMA, since state law dictates the details. For instance, some states restrict the types of assets that can be used to fund the accounts. Accordingly, competent legal counsel is a must.
One important potential drawback is the length of time the accounts remain “custodial” under the watchful eye of the adult custodians. Once the grandchild reaches the age of majority (i.e., age 18 or 21, again in accordance with applicable state law), the newly minted “adult” can do as they please with the account.
So, when the custodial account "terminates" under state law, will the hard-earned savings of parents and grandparents be spent on "consumerism" (e.g., "partying") or college tuition after the funds are cut loose?
Another important consideration is the effect of such college savings accounts on scholarships and other financial aid. Be sure to evaluate this element in the context of the family's intergenerational wealth transfer objectives.
In the end, like all things legal and financial, there a cost-benefit analysis is required. While you are at it, consider educating the beneficiary of the fund about the purpose of the fund while it is being funded.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.For more information about estate planning in Overland Park, KS, and to download free tools to help you organize your estate, visit my estate planning website.
Reference: ElderLawAnswers.com (updated July 9, 2013) “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?”