It used to be normal for parents to pay for (or help pay for) the college education of their children, or for the children themselves to work their way through. However, the cost of a college education is now at an all-time high. Student loans must be paid back ... and can get out of hand quickly.
Consequently, post-secondary education costs are pinching both parents who are struggling to take care of their own needs (and save for their own retirement), and students who are trying to cash-flow a degree.
Fortunately, many grandparents are stepping to help. After all, they have already earned their wealth and may be in a better position than the parents to pay for college.
A recent Reuters article examined how grandparents can pay for their grandchildren's college education while getting a tax benefit for themselves. The article, titled “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans” suggests a 529 college savings plan.
This unique account can be used to contribute more than the yearly gift tax exemption into an account that a grandchild can later use for educational expenses. The accounts are not perfect, as they could render a grandchild ineligible for financial aid. In Kansas, the state-administered 529 Plan is called Learning Quest, while in Missouri it is known as MOST.
Paying for college is difficult, but grandparents who want to do so have several options. A 529 plan is one of them, but in some cases a more traditional trust is a better option. The key is to talk to an estate planning attorney about your options, in conjunction with your financial advisor.
Different families have different needs. Your attorney-financial advisor team can help grandparents sort through the options to come up with the best solution for their needs.
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 throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Reuters (June 24, 2014) “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans”