Maximizing grandparents' gifts toward college financial planning
By Robert Link
123 College Advisors
Using life insurance and/or annuities, advisors can effectively assist in directing families toward accounts that provide no assessment of the grandparents' gift monies. This places the families in the best position to receive the maximum amount of college financial assistance possible.
Many parents of high school students are losing jobs, going longer than ever before between jobs, or are simply unable to find work of any kind in this still very difficult U.S. job market. Financial contributions to college funding from grandparents are now often a financial necessity rather than just nice, extra student spending money, as they once were.
Parents who never thought they would want or actually need to apply for financial college aid are now doing just that. Many parents have little or no clue as to how monies from grandparents, both past and present, will affect their bottom-line college expenses.
Many grandparents send their grandchildren generous checks for birthdays, holidays, or good report cards, instructing both the parents and their grandchildren that this is money to be used later for college. These checks tend to become larger in many cases when the children are in high school, and the college years are looming. Parents of high school students are often so caught up in their own financial struggles and attempts to save and plan for college that they just deposit these checks into an account in their child’s name, never thinking of the crucial need for scrutinizing and allocating these funds, just as they would their own personal funds they are earmarking for college.
With a hefty 20 percent of the child’s assets counted as resources by colleges, having monies directly in the child’s name is a tremendous disadvantage that will reduce the amount of college financial aid awarded to the family. Armed with knowledge about this common pitfall, parents can proactively move funds that were previously placed in their children’s names. There is another common gift-giving method (and mistake) many grandparents make once their grandchildren are already enrolled in college. Many grandparents love to write checks directly to their grandchild’s college, feeling very proud and more in control of the direct financial assistance they want to provide for their grandchildren.
Grandparents want to feel loved and needed in their advancing years. Many times, as people get older they can experience a form of memory loss. It is important to remind grandparents repeatedly that sending checks directly to the colleges is the wrong way to provide maximum financial assistance. Checks written directly to the college are counted as untaxed income to the child. This can reduce financial aid eligibility for the student by 50 cents on the dollar .
Grandparents who make those gift checks payable to the parent’s name have taken a step in the right direction; however, even those monies are assessed at 5.65 percent when applying for college financial aid. Using life insurance and/or annuities, advisors can effectively assist in directing families toward accounts that provide no assessment of the grandparents' gift monies. This places the families in the best position to receive the maximum amount of college financial assistance possible.
The subject of college planning monies from grandparents is often nothing more than a side topic, discussed by financial advisors and parents only when questions arise. However, this topic should be discussed with all parents of college-bound high school students. In our prevailing economic times, many college students would not be in college at all without the generous financial help provided by their loving grandparents. There is no greater thank you to the grandparents than for these funds to be used to their maximum potential.