With the cost of college continuing to rise at an unbelievable rate, many grandparents are asking their San Jose estate planning lawyers to help them find ways to fund their grandchildren’s educations. There are a lot of options out there, but the whole process can be fraught with quite a bit of tension and difficulty. The older generation often has a better sense of how and why to save for the future, and they can become disillusioned when they see their own children not saving. In some cases, the adult children do not have the ability or foresight to save, while in others, they do not think they need to since Mom and Dad are going to cover college.
There are some problems that can arise, however. For one thing, that growing cost of tuition (plus books, plus room and board, etc.) can pretty easily outpace the grandparents’ ability to save. Additionally, it is hard to know exactly where to put that money. Should they set up a 529 plan? Maybe they need something else?
Conventional wisdom has long had San Jose estate planning lawyers advising grandparents to fund accounts using their annual gift tax exclusions. This had the added bonus of reducing the grandparents’ estates while building a college fund. Unfortunately, the future college student’s parents are meanwhile not contributing their own funds, expecting Grandma and Grandpa to pay for everything.
These days, many estate planning lawyers are encouraging their clients to take a different approach. Rather than creating a specific college fund in the child’s name, they can save the money without it being broadcast. Instead of promising to pay for a grandchild’s education, they can simply suggest that they will help if they are able. This dissuades the parents from not saving on their own. As a bonus, the grandparents can actually save on taxes by making payments directly to the institution rather than having them count as “gifts” when put into the grandchild’s name.
One way to set up funds for grandchildren is through a family trust. The student’s parents don’t have to be made aware that it even exists—again, encouraging them to save on their own. The money that goes into the trust does count as annual gifts, but the maximum can be put in for each individual grandchild each year. San Jose estate planning lawyers might recommend this approach because the grandparent can set the terms required for the money to be accessed. So, if a grandchild chooses not to go to college, they may still be able to receive funds for other experiences, after marriage, etc. Another advantage to the family trust is that the grandparent could still choose to fund a college education out of their existing estate if they have the funds, thereby leaving the trust intact to be used for other purposes.
Financial planning for college is starting to look a little different than it has in the past, and simply setting up a trust fund is not necessarily the right choice for every family. Talk to your estate planning lawyer and find out what options are available in order to make it work for you and for future generations. To schedule an appointment at our Sacramento office or at one of our other offices located throughout the state of California, contact us at (800) 244-8814.