Grandparents Paying for College

College is a very expensive proposition these days. The cost of attending the most prestigious college is over $50,000 per year. It’s very difficult for parents to save that kind of money, especially if they have more than one child. If there are grandparents who are capable and willing to help out with college expenses, even a portion of them, they can accomplish two goals.

The first goal is obviously to help the grandchild pay for the enormous cost of college. In some cases, it is the difference between the grandchild attending the best college for that grandchild and a less-costly, but not great alternative. The other goal is that it reduces the size of the grandparent’s estate and may mean the difference between paying estate tax and not paying estate tax.

If paying for any part of college would squeeze the grandparent financially, then the grandparent should not even attempt it. The financial security of the grandparent is more important – no one should place himself in financial jeopardy to help her children or grandchildren.

But if the grandparent has enough for her needs and wants and there is money left over, helping pay for a grandchild’s college expenses is a terrific gift.

There are different ways to accomplish this goal. There are 529 plans, education savings accounts, and payments made directly to the college. The grandparent should not make a direct gift to the grandchild. Even if the grandchild makes every promise to use the money for college, the grandparent no longer has control of it and he could use the gift money to buy a car. It will also reduce the amount of financial aid that he might get from his college. If a grandparent gives more than $13,000 per year to her grandchild, it counts against yherlifetime gift and estate exemption.

Before a grandparent makes any contribution to a grandchild’s college costs, she should consult her tax advisor and her financial planner to coordinate her plan to help with college with her overall financial plan.