Saving for School: Planning for Your Family’s Education

Recently, everyone has been talking about federal education loans and paying for school. Whether you’re paying back loans, trying to decide if you’re going to take them, or watching your ten year old twins play in the yard and wondering how the heck you’re going to afford two four year universities in eight years, it’s never to late to incorporate your education goals into your estate planning! If postsecondary education is in your family’s future, there are tools that we can include in your estate plan.

If this is on your mind, you’ve likely talked to your trusted financial advisor about your options. Unfortunately, many people forget that your estate planning can (and should) work together with your financial planning to ensure that all of your plans are aligned and will achieve your ultimate goals. If you’re reading this and thinking, “…Charles… I don’t HAVE a financial planner…” that’s not a problem! We can help direct you to someone that we trust and have worked with in the past.

Provision in a Revocable Living Trust

If you already have an existing revocable living trust, including a provision for the payment of your child’s or grandchild’s education expenses can be an easy way to help even if you pass away before the education is completed. Upon your passing, the money will be available to be used as you have directed. One benefit is that during your lifetime, you can change the trust provisions as often as you like. Additionally, you can determine how the money should be used. Your definition of education expenses can be as broad or as narrow as you want, and not all of the money in the trust has to be used for education expenses.

Revocable Education Trust

A revocable education trust provides substantial flexibility, as it allows you to set up a trust, act as a trustee, and make distributions for your chosen beneficiary’s education, but it can be revoked or revised if the funds are needed for other purposes or if the beneficiary does not attend college. It will not provide the tax benefits of other trusts or education plans, but it may be a better option if flexibility is a priority.

529 Plans

A 529 plan is a savings plan that provides tax advantages designed to encourage people to save for their child’s or grandchild’s future education costs. There are two types of 529 plans: prepaid tuition plans and education savings plans.

Prepaid Tuition Plan

A prepaid tuition plan allows you to purchase units or credits for your beneficiary’s future tuition and mandatory fees in advance at the current prices, helping to avoid paying the higher costs that likely will be charged in the future. These plans are usually available only for public and in-state colleges, cannot be used for room and board, and cannot be used to prepay tuition for elementary and secondary schools. If the beneficiary later decides to attend a private college or university, prepaid funds can be applied to tuition at most private postsecondary institutions.

Education Savings Plan

An education savings plan enables you to open investment accounts to save for any qualified higher education expenses. The funds can be used not only for tuition and fees, but also for college expenses such as room and board, computers, and software. This account can also be used to pay for education expenses at some international institutions. In addition, up to $10,000 can be used for elementary and secondary school tuition.

Impact on Financial Aid

It is important to note that setting aside money for a child’s or grandchild’s education expenses may impact the ability to qualify for need-based financial aid. The identity of the account owner impacts whether the account must be disclosed on the Free Application for Federal Student Aid (FAFSA) and the weight it will be given in the need-based calculation. Additionally, most types of trusts must be reported on the FAFSA as an asset of the beneficiary.

We Are Here to Help

Here at McClenaghan Law Group we work together with your financial team and can craft a plan that accomplishes all of your family’s education goals and sets them up for the best possible future. Call us today to set up a consultation or contact to get scheduled!