An important part of estate planning is thinking about what kind of legacy you want to pass on to your children, grandchildren and generations to come. Many grandparents believe the best way to help ensure that their grandchildren get the best possible opportunities is to help fund their education.
Most people don’t have enough assets to pay their grandchildren’s tuition at any school they can get into. However, you may have enough to help them have more options when the time comes and to help them (and their parents) avoid dealing with decades of student loan debt.
There are various ways to help fund your grandchildren’s college costs. Some help you and your family avoid taxes as well. Let’s take a look at two common choices
A 529 plan
Your children may already have a tax-deferred 529 plan to pay for college. If they do, you can contribute to that if you’re confident they’ll use the money for its intended purpose. To be assured that it will be used for education, you might choose to open one for them yourself. Note that each state has its own rules for these plans, so whether it’s here in Indiana or another state, it’s important to know how it works.
Paying tuition directly to the school
If college is just around the corner for a grandchild, you decide to pay their tuition (or a portion of it) directly to the school. If you do that rather than giving the money to your grandchild, you don’t have to be concerned about gift taxes. Note that if you also pay for room and board and other expenses, you might.
These are two ways to help fund your grandchildren’s higher education while minimizing taxes. There are myriad other options for prioritizing education through your estate planning. With sound legal guidance, you can better determine what works for your and your family’s needs.