There are many reasons why grandparents may choose to fund their grandchildren’s educations. Those reasons may include:
- Family Feelings
- Tax Savings
- Improving the Lives of Successive Family
- Lifting the Burden of that Education’s Cost from Children
We all love our grandchildren and often buy them things we believe will enrich their lives and provide enjoyment. What could fulfill that better than an education that can transform their lives?
First, let’s define education. Did you see only a college education when you read that word? Today’s work world requires knowledge and skill beyond college. Technical and medical positions are in demand, and many require specialized training. Even if college is required, the long-held belief that a liberal arts education prepares one for life, that it teaches us how to think and not what to think, is not as valid in an economy that requires work ready skills. The old concept of a “gentleman’s education” in thought provoking subjects will not provide a livelihood. That thoughtful awareness must come wrapped in marketable skills – and it is expensive to combine a degree with a specialty.
Thus, we must conclude this section by asking what better expression of love can a grandparent make than to help a grandchild become prepared to compete and succeed in the economy of today and tomorrow?
The tax code assists with this worthy effort. First, gifting toward a grandchild’s education can remove assets from the estate of older grandparents thus saving state inheritance tax and potentially the much more expensive federal estate tax if one qualifies for that. In addition, gifting in a tax-smart manner, such as through 529 plans, can remove the growth of those gifted assets over time from income tax so that 100% of the gift and its growth can be used for qualified educational expenses. There is an annual gift exclusion that is generous and capable of prefunding education expenses if started early. In addition, a grandparent can pay the total of a grandchild’s tuition, fees and housing expense if paid directly to the educational institution.
Multiple studies have identified the likelihood of succeeding generations maintaining or exceeding the level of education of their parents. The most vivid illustration is that of the World War II generation’s education gained under the G.I. Bill for returning vets. That catapulted their children and grandchildren as a result into higher economic strata. Those of you reading this now likely know this phenomenon firsthand. So, your gift of education to your grandchildren will perpetuate that for successive generations of your family yet to be born.
Finally, your children have a heavy financial burden just maintaining their family. Taking on their children’s, your grandchildren’s, educational expense on top of living expense may jeopardize your children’s retirement security. If you have the wherewithal to help, why not lift that burden from your children? You will make everyone’s life more comfortable as a result and help to ensure your invitation to Thanksgiving dinner for years to come!
Talk with your advisor here at Fragasso and we can help plot your unique path to this worthy end for your family. If you are not a client, contact us to discuss your financial preparedness for this and all other aspects of your life’s financial planning.
