Can estate planning help me provide for my grandchild’s education expenses?

grandparent with grandchild graduation

In today’s society, it is common for grandparents to raise their grandchildren or play a significant role in their upbringing, helping them develop and flourish. Often, grandparents give financial support to their grandchildren. That said, while estate planning, many grandparents wonder whether there are specific ways to help pay for their grandchildren’s college expenses. Fortunately, several options can help you provide financial aid for your grandchildren’s college expenses. Please continue reading to learn about these options and discover how an adept Montgomery County Estate Planning Attorney can help you determine the best option for you and your grandchildren. 

How can I fund my grandchild’s education while estate planning?

While estate planning, you may want to leave your grandchildren’s designated funds for their education. However, this can be a complex process if not executed properly due to the tax and financial aid implications. Therefore, you will require the help of a seasoned attorney who can help you determine the best option for your situation.

Firstly, you can open a state-sponsored 529 plan. If used for education, grandparents can contribute funds to the plan, which will grow tax-deferred. With a 529 plan, 5.64% is available to pay for tuition. Moreover, if you own a Roth IRA, you can name your grandchildren as the primary beneficiaries, as it can pass to your grandchildren tax-free if the total estate is less than the unused portion of the unified credit. Therefore, grandchildren can avoid the 10% early distribution fee for withdrawing earnings if they are under age 59-1/2. It is critical to note that the Roth IRA will be disregarded as an asset on the FASFA. Therefore, distributions will be considered untaxed income. It is imperative to remember that this will affect the subsequent year’s federal student aid eligibility.

What other options are available?

Furthermore, you can create a Crummey trust. This type of trust can be designed to provide funds for one or multiple grandchildren. The assets contributed to the trust will appreciate over time and can be removed from your taxable estate, meaning your appointed beneficiaries can use these funds for college expenses.

Essentially, this can be employed to take advantage of the gift tax exclusion when transferring assets to another person while retaining the ability to place limitations when the recipient can access the funds. However, a Crummey trust is considered the child’s asset despite the advantages. Therefore, it reduces the amount of financial aid available.

As you can see, several options allow grandparents to designate funds specifically for their grandchildren’s education during estate planning. Contact a qualified Montgomery County estate planning attorney from JD Katz today to determine the most suitable choice for your particular needs. Our firm is prepared to help you choose the best path to continue providing for your grandchildren in the future.