We all dream of the day when our child or grandchild is accepted to college. From the time he or she is diapers, we begin planning for great things. We drive them to soccer, gymnastics, and music lessons in hopes that they are talented enough to earn a scholarship to college one day. Then the reality sets in that scholarships are scarce, unless your child is the country’s best point guard or a top bassoon player. We want to do right by our children and grandchildren, but who can afford the astronomical and ever-increasing costs of college?
According to the College Board, the average cost of tuition and fees in 2014 is $30,094 a year at private colleges, $8,893 a year for state residents at public colleges, and $22,203 a year for out-of-state residents attending public universities. Some prestigious private universities and Ivy League schools can even cost more than $50,000 a year. At this rate, you can only imagine what college will cost 10 or 15 years down the road.
In Virginia and 10 other states, parents and grandparents who wish to lock-in current tuition rates can do so using prepaid tuition plans. The Virginia529 prePAID plan covers full tuition and mandatory fees at any Virginia public college or university. And, Virginia public colleges are among the best in the nation. In fact, in Forbes 2014 Top 25 Best Public Colleges, Virginia has three colleges listed, including University of Virginia, College of William and Mary, and Virginia Tech. U.S. News offers a convenient list of all colleges in Virginia, including today’s tuition rates. Note that most of the public colleges on the list are ranked as “Best Colleges” in U.S. News’ Regional College (South) Rankings.
Prepaid tuition programs are currently available for newborns to ninth-graders, and open enrollment in Virginia begins this week! Watch this video about open enrollment for more details. Enrollment for this program opens annually between December 1- March 31, so now is a good time to secure a college education for your child or grandchild.
Besides locking in current tuition rates, 529 college savings plans have several estate planning benefits, as follows:
If you have a very large estate (more than $5 million), you may be looking for ways to reduce its value in order to minimize or avoid estate tax for the beneficiaries of your estate. A 529 Plan allows you to do so, and has additional estate planning benefits for account owners.
As an account owner, you can
• Remove your contributions and any future earnings from your taxable estate;
• Determine the investment elections and allocations of contributions to the account;
• name the beneficiary (only one per account), with the option to change the beneficiary (within certain restrictions) as you choose;
• determine when and how much to withdraw to pay qualified higher education expenses, or non-qualified expenses, and
• decide if and when to close the account.
The combination of these factors is unique to 529 Plans. With other types of accounts, if you maintain control of the assets, the money is considered part of your estate.
Keep in mind that contributions to a 529 account may affect your eligibility for Medicaid. For more details, please read Medicaid: The Perils of Gifting FAQ.
Estate Planning for Parents of Minor Children
If you are contemplating a 529 prepaid tuition plan, you probably have younger children or grandchildren. Many people with or without children delay estate planning, because it’s unpleasant to contemplate our own mortality, and many believe such paperwork isn’t necessary until they reach old age. In reality, estate planning is important for everyone, especially if you’re a mom or dad with one or more children at home under the age of 18.
What would happen if you are killed or incapacitated in an accident, and the police show up at your house to notify the family. If the police find your kids home alone, or with a babysitter, they will have no choice but to call in Child Protective Services and have your kids removed from your home until the system can figure out what to do, and that may take weeks or even months.
A Child Protection Plan is a set of legal documents that includes an Appointment of Temporary Guardian for someone you choose to take immediate custody of your children, a Parental Consent for Medical Treatment form, and a Medical Information form containing information on your child’s medical allergies and conditions, pediatrician information, health insurance information, immunization record, and medication list. If you are in an accident, your Child Protection Plan will help ensure that your children are never turned over to Child Protective Services because the police don’t have clear instructions from you and, if the unthinkable happens, your Child Protection Plan will help ensure that your children are not turned over to Foster Care strangers chosen by an overburdened social services system that doesn’t care about your wishes or who you would prefer to take custody of your children. Please read more about the Child Protection Plan and the importance of estate planning for parents with young children on our website.
When your child or grandchild’s education is paid for, you have the peace of mind that you locked in the current tuition rate and that you can afford to send them to college. In addition to taking care of this, as you can see, everyone needs the peace of mind that comes with making sure that their legal and financial affairs are taken care of if they become incapacitated, that decisions about health care are carried out the way they’d like even if they’re not able to make them, and that their loved ones are taken care of when that time eventually comes. To begin your Estate Planning or to update your documents, please call 703-691-1888 in Fairfax, 540-479-1435 in Fredericksburg, or 202-587-2797 in Washington, DC, to make an appointment for a consultation.
About Evan H Farr, CELA, CAP
