We all know that planning for our future is important. Once we have children or grandchildren, helping to plan for their future becomes just as important. Grandparents often take great joy in giving gifts to help their grandchildren. Especially given the rising cost in higher education in the United States, it is common for grandparents to want to contribute to their grandchildren’s futures by providing funds for college. A carefully designed and organized estate plan can provide options for grandparents to help contribute to the college funds of their grandchildren.
As a tool of estate planning, grandparents often contribute to a grandchild’s 529 account to provide funds for their grandchildren’s college education. This type of investment account is also called the Minnesota College Savings Plan. The earnings on a 529 plan are not subject to federal income tax. Moreover, this type of account allows one to retain control over it. In the event the person on the account needs to withdraw funds from it for something other than college contributions, they may be able to do so. Another benefit of a 529 contribution is that once you have contributed funds to the plan, the gift is considered complete. This means that the funds in the account will not be included in the assessment of the size of your estate for estate tax purposes.
Many people want to be careful about who will actually receive funds to help fund higher education. For example, if one were to grant a large sum directly to a grandchild, that sum could interfere with the grandchild’s ability to obtain grants or loans. A better strategy may be to grant the money to the grandchild’s parents. Another option is to set up a trust. one can place the money in a trust, making the child the beneficiary of the trust with the funds he or she receives to be used only for educational purposes. One can select anyone as the trustee, including the grandchild’s parents, a professional service, a close family friend, or anyone else they believe would skillfully and ethically administer the trust in accordance with their wishes.
We have extensive experience with helping our clients understand their options with estate planning to make sure their children or grandchildren can attend college. Call us today at (320) 299-4249 for a consultation to talk about your options.