Building a Fund for College
The cost of higher education is increasing year after year, running well ahead of inflation. At some prestigious private colleges and universities, the cost of one year's education, including room and board, has reached a national average of $32,000 (Source: Trends in College Pricing —2007, The College Board). At these prices, the final cost of a bachelor's degree can be upwards of $120,000. And, with many professions requiring graduate degrees, it quickly becomes apparent that very few families may be able to cover education expenses out of their current incomes. With only one child, the costs can be prohibitive; for families with three or more children, college and graduate school costs could easily reach —or exceed —$500,000.
How can a family build a fund for college? They need to look ahead and prepare a "blueprint" as early as possible, and there are a number of ways to do this. The best method will depend on the age of the child, the family's resources and cash needs, and a number of other considerations.
No matter what the age of the child, there are legal techniques for placing money and property in a child's name. Since it is generally not advisable for minors to own property or have large bank accounts in their own names, gifts to minor children are usually made either to a custodian or to a trust.
The Custodial Account
While some of the tax advantages of a custodial arrangement have been affected by tax law changes, the technique is still worth investigating. It is the simplest method to give money or property to a child, involving very little paperwork, hassle, and legal or other fees.
Nearly all states have adopted the Uniform Transfers to Minors Act (UTMA), which allows the custodian to hold real estate and other property including limited partnership interests, (except for Vermont and South Carolina - which still have the Uniform Gifts to Minors Act UGMA). The law of the state in which the minor lives will govern the account.
In most states, money or property held in custody must be transferred outright to the child at either age 18 or 21, depending on state law. Some states allow the custodian to designate the age at which the child may access the account, even beyond the age of majority. At the age the child has complete access to the custodial funds, he or she will be in sole control, and will have the legal authority to use them to buy a Porsche instead of paying tuition, should he or she so choose.
Setting up a trust for a child may be more cumbersome and expensive than the custodial arrangement, but it may be desirable in some situations. One important reason to transfer property to a trust for the benefit of a child is to avoid the "Porsche Syndrome." The money in the trust, whether principal or income, can be used solely for the purpose for which the creator of the trust intended— the child's education.
The creator of the trust may wish to use the federal annual gift tax exclusion that allows individuals to give $13,000 (in 2011) each year to as many donees as they wish (or $26,000 if a spouse joins in making the gift). This exclusion only works if the trust is structured so that it creates a "present interest" in the child beneficiary. The present interest requirement may be used in a number of ways, some prescribed by the Internal Revenue Code (IRC) and some by case law.
Prior to making gifts or establishing trusts, the effect of either method on long-term financial goals and a college savings program should be studied with care. The aim of providing the best education for the child, while preserving financial security for the family, should be integral to whatever decisions are made.
744 W. Lancaster Avenue . Suite 235 . Wayne . PA 19087 I Phone: 610.293.8300 I Fax: 610.293.8399
Financial Representative of The Guardian Life Insurance Company of America, New York, NY. The Information on this site is intended for the residents of Connecticut (CT), Delaware (DE), Florida (FL), Massachusetts (MA), New Jersey (NJ), New York (NY), and Pennsylvania (PA). The financial representatives of Devon Financial Associates LLC are not licensed to sell insurance in all 50 states. To find out if an agent is licensed in your state, please contact Colleen Marzella at 610-293-8304.
Securities products and services are offered through Registered Representatives of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, 1-888-600-4667. Devon Financial Associates, LLC is not an affiliate or subsidiary of PAS.
Registered Representatives are securities licensed in Connecticut (CT), Delaware (DE),Florida (FL), Massachusetts (MA), New Jersey (NJ), New York (NY), and Pennsylvania (PA) and is strictly intended for individuals residing in those states. No offers may be made or accepted from any resident outside these specified states.
Neither Park Avenue Securities, Guardian, nor their representatives render legal or tax advice. Please consult with your attorney, accountant, and/or tax advisor for advice concerning your particular circumstances.
The information or opinions contained in this Internet site should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular investment product. The information contained herein is directed solely to those individuals who reside in jurisdictions in which the representative is registered in the state where the consumer and/or prospective client reside. Any subsequent direct communication with a consumer and/or prospective client shall only be conducted by a representative that is registered in the state where the consumer and/or prospective client reside.
Individual health insurance products or services are not offered by Guardian. Property and Casualty insurance products or services are not offered by Guardian.
The Living Balance Sheet® and the Living Balance Sheet® Logo are registered service marks of The Guardian Life Insurance Company of America (Guardian), New York, NY. The graphics and text used herein are the exclusive property of Guardian and protected under U.S. and International copyright laws. © Copyright 2005-2011, The Guardian Life Insurance Company of America.
Links to other sites are for your convenience in locating related information and services. This Agency, The Guardian Life Insurance Company of America (Guardian) and Park Avenue Securities, LLC (PAS) do not maintain these other sites and have no control over the organizations that maintain the sites or the information, products or services these organizations provide. Although this Agency, Guardian and PAS believe that the information from these organizations is reliable, we cannot guarantee its completeness or suitability for any purpose. Accordingly, this Agency, Guardian and PAS expressly disclaim any responsibility for the content, the accuracy of the information or the quality of products or services provided by the organizations that maintain these sites. This Agency, Guardian and PAS do not recommend or endorse these organizations or their products or services in any way.
© 2013 Devon Financial Partners . 744 W. Lancaster Avenue . Suite 235 . Wayne . PA 19087
CLICK TO LOGIN
TO YOUR ACCOUNT