This is the time of year when many teenagers and young adults end one chapter of their lives and prepare for the next. It is also a time for many families to consider how far they’ve come and what the future holds for themselves and their loved ones. For those graduating high school, the obvious next step is college. Our New York estate planning attorneys are intimately aware of the challenges of paying for a college education these days–tuitions seem on a never-ending upward spiral.
No matter what the family financial situation, there is benefit to properly planning for these costs and understanding the implications of certain financial decisions. For example, Daily News published a story this week on the way that grandparent gifts to grandchildren heading to college can be properly tailored to meet tax goals. The story noted how the tremendous student loan burden faced by so many college graduates make tuition support one of the best gifts any grandparent (or other loved one) can provide to a young person.
But not only is the gift an act of generosity, it may be a particular prudent financial decision this year. Right now the lifetime gift and estate tax exemption rate is at $5 million. The level is set to drop down to $1 million next year. It may be logical to take advantage of these rates, so that assets can be passed on now instead of through one’s estate.
A New York estate planning attorney can explain the many different ways that gifts can be passed down to young adults to pay for college tuition or other expenses. For example, trusts can be created for minors with the assets controlled by a trustee until the minor reaches a certain age. In this way, the trustee can ensure that the funds are used to pay for desired expenses, like college. When done properly, the trust not only helps the minor, but it ensures that the transfer qualifies as a gift, with the applicable tax benefits.
It is important to have professional advice for these matters, because there are other consequences to take into account. For example, certain trusts are irrevocable, and so they should not be entered into lightly. Also, the trust assets may be counted toward the minor’s estate for financial aid purposes. As with all estate planning issues, it is prudent to be fully advised of the legal and financial details so that the exact transfer occurs in the most advantageous way.
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