Tips on Funding a Grandchild’s College Education

1:07 pm Uncategorized

2011 fathersday 150x150 Tips on Funding a Grandchild’s College EducationIn my Summer Report earlier this month, I mentioned the enjoyable time my wife and I have had this summer spending time with our seven children and 15 grandchildren.  One of the more pleasurable aspects of our firm’s practice is helping grandparents fund their grandchildren’s college educations – and, luckily, we have an abundance of generous-minded clients!

It is not unusual for grandparents to want to use shares of stock for this purpose, and there are two main ways to do this:  transfer the shares into a custodial account, or sell the shares to fund a 529 state college savings plan.

If you are gifting stock, you can consolidate the shares into a Uniform Transfers to Minors Act (UTMA) account at your brokerage.  The advantage to this approach is that, as a minor, your grandchild can collect up to $950 annually in investment income tax-free – if he or she has no other significant income, the next $950 is not subject to tax either.

However, as the shares appreciate, so does the tax liability on the gain your grandchild will have to report once they sell the stocks to pay for college.  The funds in the account are also taken into consideration when applying for financial aid.

Usually the best route is to sell the shares and invest the proceeds into a 529 plan, naming your grandchild as the beneficiary.  You will be responsible for the tax bill now, but future growth will be tax-free and so will the withdrawals if they are used as intended, for college expenses.

Another benefit to a 529 is if that grandchild decides not to attend college, the funds can be applied to another grandchild for his or her education.

If you need assistance with providing for your family’s future, we can help. Get started by contacting our Orange County asset protection estate planning law firm as soon as possible.

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