The increasing cost of college tuition has sent many people running to their Orange County estate planning attorneys to discover the most strategic, tax-friendly ways to meet their children or grandchildren’s future education needs.
It’s well known that Ivy League schools can cost over $50,000 a year, while state university programs can cost up to $25,000, with prices projected to climb. Add to the mix the cost of graduate degrees and its very likely today’s college student will leave school with a six-figure mess on their hands.
Prior to the Tax Relief Act of 2010, there were two big tax breaks grandparents and parents could claim to help their loved ones offset college expenses. They could (and still can) pay any amount of tuition directly to an accredited school for a grandchild’s education without a gift-tax requirement. And, at the time of this writing (2011), an individual may gift up to $13,000 per year tax-free.
Additionally, grandparents may set up custodial accounts or fund a 529 college savings plan for their grandchildren. Because of the larger tax exemption, many professionals are seeing a trend of grandparents earmarking education expenses for grandchildren who are toddlers or even unborn grandchildren. Another option is setting up one large trust for multiple grandchildren and even future generations.
There is one downside to setting up a trust, however, as students must report irrevocable trusts on their financial aid forms. Even if the trust doesn’t provide for income until after college graduation, it is counted. There are still things we can do, however, with irrevocable trusts.
That is why if you are a grandparent who doesn’t plan to pay the entire cost of college, you might consider contributing to a 529 plan instead. An experienced estate planning attorney in Newport Beach can help you weight your options regarding this matter.
If you would like to learn more about saving for college and how to best plan for your grandchildren’s educational future, let’s sit down and talk. I would be happy to discuss your financial and estate planning needs. Simply call our Newport Beach office at (949) 260-1400 and ask to schedule a Family Wealth Planning Session with the mention of this article ($750 value).