For many people, an important part of their estate planning involves providing financial resources for their grandchildren’s college education. This can help parents who otherwise couldn’t afford college for their kids be able to give them that advantage. It can also open up the option of schools like New Jersey’s own Princeton to grandchildren with the grades and other qualifications required,
The sooner you start thinking about your grandchildren’s education, the longer you’ll have to set aside assets that can grow over time before they’re needed. Some people start when their grandkids are babies. Others aren’t able to do so until they’re preteens or teens. It’s almost never too early or too late.
If you plan carefully, you can accomplish your goal of ensuring that your grandchildren have the opportunity to go to college (or maybe get specialized training if they have a passion for something like art, music, theater or cooking) while also minimizing or eliminating estate, gift and inheritance taxes.
As noted, trusts can be one option. Let’s look at two others.
A 529 plan
This is a tax-deferred plan that anyone can take advantage of, regardless of their income and assets, to save for a child or grandchild’s educational expenses. Plans vary by state. NJBEST is available only for New Jersey residents.
If the parents already have a 529 plan set up for one or more of your grandchildren, you can contribute to those. However, grandparents are allowed to open them as well. It’s smart to learn more about how they work and how they can be an important element of your estate planning
Paying your grandchild’s school directly
If you have a grandchild who will be enrolling in college within the next couple of years, you can directly fund all or part of their tuition by paying the school directly and avoiding gift taxes.
You can also fund all or part of their room and board and other expenses. However, that money may be subject to gift tax.
Regardless of which option(s) you’re considering, it’s crucial to discuss them with your grandchildren’s parents. It’s also important not to tie this educational support to your own goals for your grandchildren. Whether you’re ready to begin, or if you’re considering changing your current strategy, it’s important to have sound estate planning guidance to determine the best way to accomplish your goals.