Michigan Estate Planning Blog

Grandparents Paying for College

It used to be normal for parents to pay their children's way through college or for the children themselves to work their own way through. However, the cost of a college education is now so high that it is almost impossible for students to make enough to pay for it with part-time jobs. Many families struggle enough to meet their current needs that they just do not have enough to pay for their children's education. Increasingly, paying for college education has become something that grandparents want to do. They have already earned their wealth and are 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 make a grandchild ineligible for financial aid. 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 best options, in conjunction with your financial advisor. Different families have different needs. Your attorney and financial advisor team can help grandparents sort through the options to come up with the best solution for their needs.

Reference: Reuters (July 18, 2014) “YOUR PRACTICE-Selling grandparents on the perks of 529 college savings plans”

For more information, see www.jerryreiflawyer.com

College Funding Considerations Saginaw, MI

Planning for the future of your grandchildren? Few steps 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, and then the parents and grandparents can then make gifts of the accounts to create a powerful college fund. 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 (18 to 21, again in accordance with applicable state law), the newly minted “adult” can do as they please with the account. So, will the hard-earned savings of parents and grandparents be spent on consumerism or college tuition after the funds are cut loose? In the end, like all things legal and financial, 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.

Reference: ElderLawAnswers.com (updated July 9, 2013) “Gifts to Grandchildren: What Do UGMA and UTMA Have to Do With Grandma?

For more information, see www.jerryreiflawyer.com

529 Education Savings Plans Proliferate

Planning for the next generation, and for what you will leave them, often varies depending on what you have and what your loved ones will need. In today’s economy, the rising costs of education are leading many families to choose the “gift of education” as a fundamental goal in their wealth transfer planning. As a result, it is no surprise that recent analysis by Morningstar Inc. found a sharp increase in contributions to Section 529 plans in 2012. Reuters reported on these findings in an article titled “Morningstar: 529 college savings plans up in 2012 despite some lags.” The article notes a 529 plan is a tax-advantaged account that encourages savings now toward exorbitant college costs later. That said, not all plans are alike and the study found some were far better than others, and some were even of questionable worth. The final analysis: although 529 education savings plans as a whole underperformed against some mutual funds, 2012 saw a 25% rise in 529 plan assets against a 13.4% gain in the S&P index.

Reference: Reuters (April 22, 2013) “Morningstar: 529 college savings plans up in 2012 despite some lags”

For more information, see www.jerryreiflawyer.com

 

529 Education Savings Plans Proliferate Saginaw, Michigan

Planning for the next generation, and for what you will leave them, often varies depending on what you have and what your loved ones will need. In today’s economy, the rising costs of education are leading many families to choose the “gift of education” as a fundamental goal in their wealth transfer planning. As a result, it is no surprise that recent analysis by Morningstar Inc. found a sharp increase in contributions to Section 529 plans in 2012. Reuters reported on these findings in an article titled “Morningstar: 529 college savings plans up in 2012 despite some lags.” The article notes a 529 plan is a tax-advantaged account that encourages savings now toward exorbitant college costs later. That said, not all plans are alike and the study found some were far better than others, and some were even of questionable worth. The final analysis: although 529 education savings plans as a whole underperformed against some mutual funds, 2012 saw a 25% rise in 529 plan assets against a 13.4% gain in the S&P index.

Reference: Reuters (April 22, 2013) “Morningstar: 529 college savings plans up in
2012 despite some lags”

For more inforomation, see www.jerryreiflawyer.com

 

GIVING / COLLEGE 529 PLANS

Whether you’re a parent or a grandparent, one of the hallmark ways of preparing for the upcoming generation is the college savings 529 plan. There’s a bit of bittersweet news there nowadays: overall funds are down, but the alternatives even lower. According to a recent Wall Street Journal article, and Morningstar research, investments in 529 plans fell an average of 9.5% in the third quarter and are now down 5.9% this year through Sept. 30. This marks the worst setback since the market crash in early 2009. Of course, thanks to market volatility and several rounds of bad news from around the globe, the Standard & Poor's 500-stock index fell 14% and 10% over the same periods. Further, while the S&P has been fairly flat over the past five years, the average 529 plan has returned 4.6%, and accumulated earnings are still tax free. It just may be, as many uphold, that the 529 is still a great option if you have a future student for whom you need to plan. Indeed, especially for grandparents, the current tax environment might be especially helpful. Whatever investment vehicle you choose, your help and proper planning may be more important now than ever before as the last five years also have seen tuition and fees increases by as much as 38% for in-state, public college students and 30% for private college students.

Reference: The Wall Street Journal (October 18, 2011) “Bad Marks for College-Savings Plan May Not Call for a Time Out”