<p>My father informed us recently that he wanted to contribute to all of his grandchildren's education to the tune of $50K per child. Our children are 17,15,13,10. He was advised to set up 529 college funds by his financial advisor, depositing up to 11K per year in those accounts. His intent was to make up the bulk of the difference between the EFC and the reality of our ability to pay. Our EFC is around 27K. If S takes out 5K per year in loans, we can swing 6-7 out of savings.<br>
The problem is that my dad is ill. He has congestive heart failure, and has had two mild strokes in the past year. Although we're praying that he has many years left with us, there is a real possibility that he may not. If he passes away, the 529 goes to the beneficiary (the children) in their names, and would be included at a high rate in their financial aid calculations.
The other option would be for him to set up trust funds for each child claimable at age 22, and have them take student loans out during college. They could then repay the loans from the trust fund after graduation. The trusts wouldn't have the same tax advantage as the 529, but would not be considered assets by FAFSA in the EFC. In the case of the older kids, the growth of the 529 funds would be minimal anyway.
Right now, we're leaning toward the trust funds. Is there anyone here who would have some knowledge about them, since I'm in unchartered territory with all this. Thanks in advance for any information -Chris</p>
<p>You need to consult your accountant for specifics - but here's my story:</p>
<p>My parents (my kids' grandparents) were in a similar situation. They opened 529s with $55,000 per child in them, since you can give 5 years of $11,000 at once. The accounts, of course, immediately began to grow. We did not apply for financial aid, so this didn't affect anything, but I know many others, including relatives, who were in the same situation.</p>
<p>As soon as a single check arrives from a 529, the college knows about it and if it is a private college, will consider it. Colleges also seem to find out about trust funds. What many people don't know is that the FAFSA is not the be-all and end-all ------the college can consider (or disregard) anything it wants to. And as I understand it, only a tiny fraction of the colleges in the US agree to fund 100% of need (and even there, they define "need" their own way).</p>
<p>The point in all this is that IT MAY NOT MATTER whether it is in a trust or a 529. In the case of just about everyone I know (admittedly this is anecdotal, but still, it's over a dozen cases), the colleges were aware of both 529s and trusts and treated them accordingly.</p>
<p>Others may know more, but it would still be best to call your accountant.</p>
<p>Trusts are included in Financial Aid calculations as an asset of the owner, as are 529 college saving plans. Prepaid tuition plans, on the other hand, are considered as a resource when determining need, and therefore are a dollar for dollar reduction against financial aid.</p>
<p>Assets are assets, and since they are considered to belong to the owner, my advice would be to have your father gift the money to you by opening up a 529 account in your name with your kids as the beneficiaries. This way, you run no risk if he passes away since they will be in your name and included at your asset rate (rather than your children's rates). But make sure the plan is a savings plan, not a prepaid tuition plan.</p>
<p>Of course, this is based on current law and policy which could (or rather is likely) to be different by the time you are looking at colleges, especially for the younger kids.</p>
<p>because you can CHANGE whats in the trust that counts.
529 have limited maneaveriblity, and you can move $ only once per year. 529 money must be kept in a 529, and must be used for education only, no other choices. </p>
<p>I sell 529's but discouage people from using them unless they have a very short time horizon and just want the state and federal tax benefit. 529's is a terminal program in that once its in, that's it; Whereas you can use a bond to go to UGMA to Coverdell to 529. You can go foward from a bond but not backwards from a 529. </p>
<p>As for a tax program, you will not pay taxes (fed & state) on 529 but you also can not take any loses either. UGMA/UTMA you can pay taxes at the kids tax rate and kid can take tax loses. If you think all your investments will be golden then do the 529. But in the last 5 years, things have not been perfect. Plan for the future but prepare for the worst. </p>
<p>Side note: There is a trend to not to use IRA's because GW's tax reduction favors investment outside of tax qualified programs. Again a program primarily for the well off, and sophisticated client. </p>
<p>As always consult a Knowledgeble AND Competent person. Also, Get an opposing view.</p>
<p>Personally for our situation we used choice D: all of the above. </p>
<p>No crystal ball. And the past is past.
Accountants are historians. Financial Advisors/consultants are futurists. Insurance Agents don't disclose everything, tax people only know about taxes, and lawyers think they know everything. Therefore-Option D. </p>
<p>Good luck. Consider children fortunate to have caring parents and relatives. That is often more than enough.</p>
<p>See home page: Financial Aid and Scholarships, Roger Dooley. Good thoughts.</p>
<p>Thanks for all the advice-tho to be honest we're all more confused than ever. And we don't have an accountant unless you count the tax preparers at H&R Block! We've sought advice from 2 people we know in the field of financial planning. Got 2 different scenarios, and like the advice you all gave me, it all sounds very logical, and also completely contradictory.
Our latest scenario is D: all of the above. 1/2 the gifted funds in 529's in our names, and the other 1/2 in trusts. There is always a possibility that not all my kids will be attending expensive universities, or at all. Dad's said that the $ could also be used for business start-up, down payment on a house, etc. S1 has already received substantial aid offers from his safety schools. If he doesn't get accepted at his #1 choice we may not need the $ for him at all (save it for grad school). Thanks again for your insights-</p>
<p>Luckysmom:</p>
<p>One other aspect to consider- you could talk to your dad about using the money for things that would maximize your aid:
A} pay off all cars
B} pay off any debts
C} purchase any large purchases you'll be needing
D} pay down your home equity (if it is a fafsa school this helps)</p>
<p>You can do all the ethical things to reduce your cash to be declared (529 in your name is your asset) I would assume your dad would then want your committment to give back that money to the kids in some form later and if ya'll ahve that type of relationship, perhaos that would maximize aid.</p>
<p>Reread #6. I would strongly recommend that you do not use either a 529 or Coverdell IF your kids do not attend higher education.</p>
<p>529's must be used for someone's education. If one of the kids will will not use the 529 then the monies must eventually go to someone in their generation or lower. The monies will not revert to you or grandparent. </p>
<p>Coverdells must be used by the kid (beneficiary) by age 30. Then the money reverts to the custodian's IRA. The IRA will of course have the normal withdrawal penalties.</p>
<p>You do have the right of recision, but there is a time limitation.</p>
<p>Again, if no education is foreseen or that there is a good chance of not going to higher ed, DO NOT used 529 or Coverdell. This info must be disclosed in writing when you originate or prior to signing on to the programs. The information does not have to be disclosed verbally.</p>