Are you leaving all of your money to grands? Or are you leaving some to parents and some to kids? The money left to parents will have greater protection than money left to kids.
We don’t know how much money for each grandchild you’re talking about, so it’s hard to answer.
You started another thread about a possible trust…correct me if I’m wrong. But it sounds like you are looking for a way to leave money to these grandchildren that will not be counted in the financial aid calculations.
Really…there isn’t any way for them to get money…and not have it be counted by the financial aid offices.
No, it doesn’t make sense. Need-based grants very often go to more than just low income families, and, depending on how you define various levels of the SES pyramid, they can even go to families that might be considered relatively wealthy (depending on the college and other circumstances). And, as previously pointed out, federal student loans are available to any student eligible to complete FAFSA.
The way the rules currently stand I think you’re correct. Money you leave to your grandchildren won’t affect merit awards at most schools. If there are schools that tie need to merit then it might affect the aid at those schools, but they can look for colleges that offer merit purely based on stats. I think that assets could affect need based aid, but you’re right that it wouldn’t matter because they’d no longer have need anyway.
I’m trying to work-out the best way to leave money to my grandchildren without adversely affecting their ability to finance their college education (assuming I’m gone by then). I’ve looked at all kinds of strategies for minimizing the impact of inheritance on FAFSA. However, my impression is that, basically, all financial aid is either need-based or merit-based. Inheritance has no affect on merit-based financial aid. With respect to need-based, there are loans and grants. Again, my impression is that need-based grants are almost always directed to low-income families rather than middle-class families. So, any inheritance would only affect eligibility for need-based loans. In that case, if funds my grandchildren inherit obviate their need for loans, there’s no harm in that. So, in a nut shell: Inheritance does not affect merit-based awards. It is unlikely to affect need-based grants for middle income people. It could only affect need-based loans. And if it obviates the need for those loans, no harm done. Does that make sense?
Don’t do anything for the sake of financial aid that doesn’t make sense in terms of your overall financial/tax/estate plan.
This is the single biggest mistake people make- trying to get an extra 5K in aid but ending up paying an extra 30K in taxes, or getting another 10K in aid (spread out over four years) but losing out on 150K in appreciation. People are so quick to maximize their aid without looking at the big picture.
It is terrific that a grandparent is in good financial shape and wants to help the next generation. That is fantastic. You should do that in the context of a sound estate plan, based on what you know today about your own health and longevity (realizing that it could change), other financial obligations and needs, and what you (or your advisors) know about the tax code. And of course- it depends on the ages of the grandkids, how many other heirs are involved, etc.
Before you get too far down the road, make sure you have covered off the basics- your accounts are titled correctly, you have an accurate and appropriate power of attorney, you have a list in an easy to find place of all of your assets and liabilities (if any), you have filed your taxes for last year and paid your property taxes, and your children know your wishes for any funeral arrangements (by the time your will is read it’s likely too late). Then make sure you’ve got your medical/health care proxies taken care of. After that, and before you need to do anything complicated-- are you taking advantage of your annual gifting? (the limit has just been raised).
If all that is covered off- it’s worth having a candid (or semi candid) conversation with the parents of these grandchildren. If they are high earners and likely to continue being high earners, then money you set aside for the grandkids education is all a benefit to them (if they won’t qualify for need based aid, more money is always better than less). And then- figuring out the best way to do that is worth asking about- setting up a 529? contributing to one that’s already in the kids name? setting up another type of account with annual contributions, making the grands the beneficiaries of your IRA, or whatever.
Etc. But your generosity re: college needs to be part of a much bigger plan.
Also keep in mind any restrictions you build into a trust (for instance, not allowing access to the money until age 25 to prevent them from blowing it too quickly) may also hamstring them. That money would still be an asset used to calculate aid, which could cause them to need to take out loans - one of those situations where trying to save money ends up costing money. And if you work with a financial planner who encourages you to put your money in trust now, to protect it in case you end up in a nursing home, ask them whose asset it will be, because it’s not safe to spend until after the 5-year lookback period, unless you have enough other money to pay for your nursing home.