Estate and Financial Planning for Your College-Bound Child

Female college student moving into dorm with help from parents

Planning for your child’s college education is a crucial step in securing their future. As a parent, you may have concerns about navigating the complicated world of financial planning and legal considerations. If so, and you reside in Southeastern Massachusetts, this is the perfect time to contact Erin L. Nunes, Esq., Rising Star partner at the well-known estate planning practice of Surprenant & Beneski, P.C.

Erin has the knowledge and well-honed skills to help you understand the various strategies, tools, and tips available to effectively plan and manage your finances for this purpose. By familiarizing you with these key aspects of estate planning, she will enable you to take confident steps towards ensuring your child’s educational needs are met, making a significant investment in their future.

Why Estate and Financial Planning is Crucial for Your Child’s Education

Proper planning plays a central role in preparing for your child’s future. With the cost of college education steadily rising, it’s more important than ever to establish a secure financial plan. This foresight not only helps in accumulating the necessary funds, but also in safeguarding your child’s academic journey against unforeseen circumstances. 

It’s about more than just setting aside funds; it’s about strategically managing your assets to maximize benefits for your child’s education. This includes exploring various saving tools and investment options that can grow over time, ensuring a substantial educational fund.

Effective estate planning for your college-bound child also offers peace of mind. You may feel like your child is just that, a child. But legally, once they turn 18, they are an adult in the eyes of the law. That means that you no longer have the right to make legal, financial, or medical decisions for them. 

While they are in college, that institution may turn to you for payment and other cost-related problems, if you try to contact the college for information about your child, you are likely to be met with resounding silence. Should your child fall ill at school, or be involved in an accident, you will not have the authority to step in to make decisions for them. Without that authority, you may find yourself in the unfortunate position of having to petition the probate court to become your child’s conservator and/or guardian. 

A conservator is a court-appointed person who can make legal and financial decisions on behalf of an incapacitated person, and a guardian is a court-appointed person who can make medical decisions on behalf of an incapacitated person. At a time when your child is sick or injured, having to deal with the expense and delay of court involvement is the last thing you want to deal with. Fortunately, it can be avoided. We recommend that your child execute a Durable Power of Attorney, Health Care Proxy, and HIPAA Release Authorization.

The Durable Power of Attorney allows them to name who they would want to step into their shoes to make legal and financial decisions for them. The Health Care Proxy allows them to name who they would trust to make medical decisions on their behalf if they were incapacitated. And, the HIPAA Release Authorization allows them to name the individuals they want to have access to their protected medical information.  Having these documents in place can avoid months of probate court delay, save thousands of dollars in expense, and give them the power to choose for themselves who they want to serve in these important roles.

 Types of Estate Planning and Financial Planning Tools for Educational Funding

  • 529 College Savings Plans: A 529 Plan is a state-sponsored, tax-advantaged savings plan designed specifically for education expenses. The contributions to these plans grow tax-free, and withdrawals are also tax-free when used for qualified education costs, making them a highly efficient savings tool. Additionally, they are flexible in terms of who can contribute, allowing friends and family to also participate in funding a child’s education.
  • Education Trusts: Education trusts are legal arrangements where funds are set aside specifically for educational expenses. They provide a high degree of control over how and when the funds are used, ensuring they are dedicated solely to education. This tool is customizable, allowing parents to set specific terms that align with their goals and family needs.
  • Custodial Accounts (UGMA/UTMA): These are simple savings accounts established under the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) where assets are held in a minor’s name. They offer an easy way to save for a child’s education, though they provide less control over the use of funds compared to trusts. These accounts are versatile and can be used for expenses beyond just college.
  • Coverdell Education Savings Accounts (ESAs): ESAs allow for tax-free earnings growth and tax-free withdrawals when used for qualified education expenses, similar to 529 plans. They are unique in that they can cover educational costs from kindergarten through college. However, they come with contribution limits and income restrictions, which are important to consider when incorporating them into your estate planning.

Tax Implications and Benefits

Tools like 529 College Savings Plans and Coverdell Education Savings Accounts (ESAs) offer significant tax advantages. Contributions to these plans grow tax-deferred, and withdrawals for qualified educational expenses are tax-free, providing a substantial benefit over traditional savings accounts. Furthermore, contributions to 529 plans may be eligible for state tax deductions or credits in some states, enhancing their appeal. Understanding these tax benefits can significantly impact the overall effectiveness of your education funding strategy, ensuring more of your money is used for its intended purpose – your child’s education – rather than being eroded by taxes.

 How to Start the Estate and Financial Planning Process for College Education

Beginning the estate and financial planning process for your child’s college education involves several key steps.

  • First, assess your financial situation and establish clear goals for your child’s educational funding. This involves determining the amount you’ll need to save, considering factors like the type of institution and anticipated inflation in education costs.
  • Second, familiarize yourself with various saving tools, such as 529 Plans, ESAs, Custodial Accounts, and Education Trusts, to identify which best aligns with your financial goals and family dynamics.
  •  Third, it’s wise to consult with a financial planner and estate planning attorney. These professionals can provide tailored advice, helping you navigate tax implications and legal considerations, ensuring your plan is both efficient and effective in meeting your child’s future educational needs.

 Common Mistakes to Avoid in Estate Planning for Education 

When embarking on estate and financial planning for education, it’s crucial to avoid common mistakes. One key error is underestimating the future cost of education, failing to account for inflation and varying expenses at different institutions. This can lead to insufficient funds when the time comes. 

Another common oversight is not regularly reviewing and updating your estate plan. Changes in family dynamics, financial situations, or education goals necessitate adjustments to your plan. Additionally, overlooking the impact of your education funding strategy on financial aid eligibility can inadvertently reduce your child’s potential aid. 

Lastly, it’s important to understand the specific tax implications and benefits of each saving tool used, to maximize your investments and avoid unnecessary tax burdens.

How We Can Help: Our Services in Estate Planning for Education 

At Surprenant & Beneski, P.C., we specialize in crafting tailored estate planning strategies to secure your child’s educational future. Partner Erin Nunes, like all of our experienced attorneys, understands the nuances of various savings tools and legal frameworks, ensuring that your plan is both effective and compliant with current laws. She will work closely with you to understand your unique financial situation and educational goals, providing personalized advice on the most suitable options, from 529 College Savings Plans to Education Trusts. Her commitment is to guide you through every step, from initial planning to ongoing management. 

By integrating education funding into your estate plan, you create a financial safety net that ensures your child’s educational goals remain achievable, regardless of life’s uncertainties. By planning early and wisely, you can relieve the future financial burden on your family and provide your child with the invaluable gift of education without unnecessary stress or debt. Contact us today.