As you start developing your estate plan, one of your top priorities may be leaving money to help fund your grandchildren’s college education. Some people start doing this before their grandchildren are even born. However, if you have one or more already in the world and maybe nearing college age, you may want to consider some options in addition to traditional estate planning tools. It’s all part of your estate planning.
Even if you don’t have enough money to fund a grandchild’s full college costs, any amount you can contribute will help broaden their choices and take some pressure off their parents. You can also help keep your grandchild from having thousands of dollars of student loan debt hanging over them when they graduate.
There are various ways to help fund a grandchild’s college education. Let’s take a look at three common choices.
A trust fund
Trust funds aren’t just for wealthy kids. Any trust that’s already funded with assets can be considered a trust fund. When they’re set up to be used for college, it’s generally an irrevocable trust with the parents as trustees. However, it’s wise to explore other options as well.
A 529 plan
Your children may already have a tax-deferred 529 plan for a grandchild’s college education. You can put money in that, or you can set up one yourself so that you’re in control of it. Note that each state has its own rules for these plans, so it’s important to know what the rules for your plan are, whether it’s in Michigan or elsewhere.
Paying the school directly
If you have a grandchild who will be attending college soon, you may decide to pay all or part of their tuition directly to the institution. You can only pay the school directly for tuition – not for room and board or other expenses. Note also that paying the school rather than your child or grandchild lets you avoid gift taxes.
There’s a lot to consider. One big consideration, particularly if you’re making a large contribution to a grandchild’s education, is avoiding taxes for yourself and your family. With sound legal guidance, you can determine the best choice for everyone involved.