This is a question you might not have contemplated until the pandemic raised concerns about health all over the United States. It’s come front and center for those parents who have a child who has either gone off to college for the first time or returned to campus for the first time since the pandemic started. No matter which of these applies to you, have you done estate palnning with this adult child before they left?
Given that it’s unknown what campus life next semester will be like, it’s a good idea to do everything you can to plan ahead and prepare. Getting the call that the school has a big spread of COVID or that your child is sick and needs to return home are real possibilities for parents in the next year, and estate planning can help to answer some very important questions during this time of uncertainty.
If you have a college age child, it may be important to create estate planning documents specifically for this purpose. If your child is away at college, you do not necessarily have the authority to make medical decisions on their behalf unless you have been specifically granted this legal authority in a power of attorney document.
A durable power of attorney document can be used when signed by your adult child stating that you are able to make care decisions on their behalf if they become incapacitated as a result of covid or any other medical condition. Without these documents you do not have the authority to act even if your child just turned age 18 yesterday.
During this period of transition when your newly legal adult might still have strong ties to home and rely on you for support in these important decisions, it’s critical to think about how these documents could help you avoid difficult situations.
A 529 plan is one of the most common methods for people to plan ahead for their children with regard to education. 529 plans are used by parents as well as grandparents to leave behind assets for a child’s use in college and beyond. The importance of naming a successor, however, cannot be understated.
You should contact your 529 plan manager for the form to submit both primary and secondary successors. The account holder will submit the form naming the successor as the new account owner and if the owner dies unexpectedly, the primary successor assumes all control. Remember that the successor has all the rights of a traditional account owner.
That means he or she can choose to change the beneficiaries, so this should be somebody you trust. Scheduling a consultation with an experienced estate planning attorney who has helped many other people gather the necessary strategies and tactics to protect investments and assets for college education is important. Sitting down and walking through what you intend to do with your assets, including 529 plans and naming successors and secondary beneficiaries on all of your accounts can give you greater peace of mind that your wishes will be followed in the future.
Passing things on to future generations is a common concern for many people interested in protecting their loved ones, but for a meaningful gift this holiday season, you might choose to establish an estate plan or contribute to a child’s 529 college savings account.
When you are thinking about the future of your loved ones, it’s always helpful to have an estate planning attorney at your side.
Doing so with the assistance of an experienced estate planning attorney can help you pass on a gift that helps your loved one in the future to pursue his or her educational dreams. Education is the cornerstone of planning ahead for minor children and your thoughtful care to put together an estate planning tool that protects your loved one’s right to pursue education without having to worry about the burden of costs, can have positive impacts for generations to come.
Education is often very important to numerous family members and the selection of a 529 College Savings Plan or other estate planning tools that can allow your loved one to pursue education without fear of the high costs is a very valuable gift and one that will be treasured for years to come. Furthermore, college savings plans may offer you numerous estate and gift tax benefits. Consulting with a lawyer can tell you more about how this can affect you.
Approaching the overwhelming cost of college is a challenge that many parents are thinking about this summer as they are preparing to send off their new graduates to college. With the cost of graduate school as well as college on the rise, many prospective students and parents are looking towards retirement accounts as an effective way to pay for school.
According to a recent study conducted by Sally May & IPSOS, up to 6% of parents withdrew from their retirement savings such as an IRA or a 401(k) to help pay for a child’s college. Since the price of college has gone up, it may the case that parents do not have enough set aside to pay for college. There are some considerations to evaluate before using an IRA to pay for school:
- Withdrawals prior to age 59 and a half can lead to a 10% penalty except in situations like putting down a payment on a first home or higher education expenses. The expenses have to be for a child, grandchild, a spouse or yourself. When withdrawing from an IRA, a student or a parent can pay for tuition, books or other qualified education expenses with no penalty.
- There are major differences between using a traditional IRA and a Roth IRA for higher education costs. The best approach is to use a Roth IRA to pull out without a 10% early withdrawal penalty.
- You can roll a 401(k) into an IRA to pay for educational expenses.
A withdrawal from an IRA can impact financial aid. Students who apply for need based financial aid have to report asset information and income on the free application for federal student aid. Money inside a retirement account such as a traditional or a Roth IRA are assets that are exempted from being evaluated on the FAFSA, but withdrawing funds from an IRA account does count as income over the following years.
The assets you have in mind for your loved ones may include your thoughts on how they will be used, too. That’s why some people choose to use tools such as trusts to maintain some level of control over how the assets are used. Were you hoping to leave behind some assets for your loved ones to help with educational costs?
Higher education is only becoming more expensive. Recent data points showed that it is outpacing inflation by an average of at least 4%. Within the last five years, tuition has increased by at least 9% in most cases and many families are struggling with how they will be able to plan for college.
While there are traditional opportunities such as a 529 savings plan, it is also important to consider that you may wish to include planning ahead for higher education in your estate planning. Leaving behind a specific type of account or using a life insurance policy to assist a loved one with paying for college are just a few of the ways you can assist a beneficiary with accomplishing his or her goals comprehensively.
Do not hesitate to reach out to an experienced estate planning lawyer, if you have questions about the different ways that you can incorporate assets that will be gifted on to others that they can use for the purposes of higher education. If something were to happen to you, your loved ones would be able to tap into those financial resources to accomplish their educational goals.
If you’ve already looked into getting one, you know that Section 529 savings plans are able to accumulate earnings without federal income tax (and in many cases, state income tax). Once the beneficiary of the account reaches the age where he or she is going to college, that individual can take out withdrawals tax-free to pay for college expenses.
For the most part, relatives set up 529 plans, but no family relationship is actually required. Another little-known fact about these is that most of them will accept larger lump sum payments. Making these larger payments into a 529 plan can be beneficial for your estate planning because they are treated by the IRS as “completed gifts”. Likewise, they also fit into the yearly gift tax exclusion ($14,000). If you decided to spread your lump sum over several years, you could benefit from this gift tax exclusion every single year that you’re making a contribution.
This is a great tool for grandparents who want to help support their grandchildren’s future, because you can be making contributions for numerous grandchildren over several years. As an added bonus, 529 accounts can be a bit flexible, like if you need to change account beneficiaries without facing any penalties. Contact our offices today to learn more about estate planning tools and options to minimize taxes and pass on your legacy. Call us at 732-5521-9455.