Careful planning can ensure a healthy contribution to the education and financial future of your grandchildren.
The first step involves a talk between you (the grandparents) and your adult children. According to 2008 research from The Hartford Financial Services Group, 65 percent of grandparents surveyed reported that they plan to contribute financially to their grandchildren’s college education, but that less than one third of all survey participants talked with their adult children about those plans.
Statistics show the amount of money that changes hands between grandparents and their grandchildren is substantial even before the children head off to college. Hartford reports that more than 40 percent of grandparents spend more than $2,000 annually on their grandchildren before they reach 18 years old. In addition, once it’s time for the children to head off to school, over half of grandparents who plan to contribute will give more than $10,000, with a quarter of those planning to give more than $30,000.
At Haisman Wealth Management, Inc., we are helping many grandparents and adult children coordinate a gifting strategy that makes sense. In the meantime, there are several options to consider:
Talk: Grandparents and their adult children might find it difficult to talk about money issues in general, but discussing a positive goal, like funding a child’s future, can pave the way to make discussions later about your estate issues and end-of-life care a little easier to handle. Initially these discussions will hopefully deliver a reality check. The Hartford survey points out that 60 percent of the grandparents surveyed believe that financial aid will be the most likely way their grandchildren will pay for college in an era where federal aid is declining. Grants and scholarships cover only an estimated 15 percent of total college costs.
Start early: While many families do not turn to relatives for help until there is an immediate need, earlier planning almost always produces better results. You probably already know that saving for a child’s college education is easier if it starts at birth. The same is true for the next generation. Grandparents or adult children need to set a plan in place as early as possible for maximum benefit.
Coordinate college support with overall estate planning: Grandparents should look at their support for their adult children and grandchildren as an overall part of their estate strategy. Haisman Wealth Management Inc., in concert with estate and tax experts, can help grandparents and their adult children settle a series of estate issues at one time, saving time, money and worry later.
Consider the 529 plan option: A 529 college savings plan is an investment vehicle operated by a state or educational institution, designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Service Code, which created these plans in 1996. If parents have set up a 529 plan for their child, grandparents can contribute to that plan or they can set up their own 529 plan account with their grandchild as the beneficiary.
One note of caution here; the 529 plan currently does not allow for funding of primary or secondary education. If you see this in the future for your grandchildren, contact us for details on other options that are available.
Watch the fees: No matter what savings or investment options you choose, make sure you are not overpaying fees. Since Haisman Wealth Management, Inc. is a fee-based firm, we can recommend appropriate low expense investments with no commission.
Offer some investing training wheels: Grandparents have a unique relationship with grandchildren. They can teach without “lecturing” like parents. For that reason you might consider setting up an investment account with a small balance that the children can monitor and discuss under the supervision of the grandparent.
Make the grandkids beneficiaries: Naming your grandchild as the beneficiary of a retirement account or insurance policy may be a tax-smart way to provide financial support for college or possibly a first home. However, proper planning before doing so is a necessity to avoid unintended consequences.
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Grandparents, Grandchildren and Money – How to Help Financially
Careful planning can ensure a healthy contribution to the education and financial future of your grandchildren.
The first step involves a talk between you (the grandparents) and your adult children. According to 2008 research from The Hartford Financial Services Group, 65 percent of grandparents surveyed reported that they plan to contribute financially to their grandchildren’s college education, but that less than one third of all survey participants talked with their adult children about those plans.
Statistics show the amount of money that changes hands between grandparents and their grandchildren is substantial even before the children head off to college. Hartford reports that more than 40 percent of grandparents spend more than $2,000 annually on their grandchildren before they reach 18 years old. In addition, once it’s time for the children to head off to school, over half of grandparents who plan to contribute will give more than $10,000, with a quarter of those planning to give more than $30,000.
At Haisman Wealth Management, Inc., we are helping many grandparents and adult children coordinate a gifting strategy that makes sense. In the meantime, there are several options to consider:
Talk: Grandparents and their adult children might find it difficult to talk about money issues in general, but discussing a positive goal, like funding a child’s future, can pave the way to make discussions later about your estate issues and end-of-life care a little easier to handle. Initially these discussions will hopefully deliver a reality check. The Hartford survey points out that 60 percent of the grandparents surveyed believe that financial aid will be the most likely way their grandchildren will pay for college in an era where federal aid is declining. Grants and scholarships cover only an estimated 15 percent of total college costs.
Start early: While many families do not turn to relatives for help until there is an immediate need, earlier planning almost always produces better results. You probably already know that saving for a child’s college education is easier if it starts at birth. The same is true for the next generation. Grandparents or adult children need to set a plan in place as early as possible for maximum benefit.
Coordinate college support with overall estate planning: Grandparents should look at their support for their adult children and grandchildren as an overall part of their estate strategy. Haisman Wealth Management Inc., in concert with estate and tax experts, can help grandparents and their adult children settle a series of estate issues at one time, saving time, money and worry later.
Consider the 529 plan option: A 529 college savings plan is an investment vehicle operated by a state or educational institution, designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Service Code, which created these plans in 1996. If parents have set up a 529 plan for their child, grandparents can contribute to that plan or they can set up their own 529 plan account with their grandchild as the beneficiary.
One note of caution here; the 529 plan currently does not allow for funding of primary or secondary education. If you see this in the future for your grandchildren, contact us for details on other options that are available.
Watch the fees: No matter what savings or investment options you choose, make sure you are not overpaying fees. Since Haisman Wealth Management, Inc. is a fee-based firm, we can recommend appropriate low expense investments with no commission.
Offer some investing training wheels: Grandparents have a unique relationship with grandchildren. They can teach without “lecturing” like parents. For that reason you might consider setting up an investment account with a small balance that the children can monitor and discuss under the supervision of the grandparent.
Make the grandkids beneficiaries: Naming your grandchild as the beneficiary of a retirement account or insurance policy may be a tax-smart way to provide financial support for college or possibly a first home. However, proper planning before doing so is a necessity to avoid unintended consequences.
Back to the top