How Grandparents Can Help Pay For College

Grandparents wanting to help pay for a grandchild's education may with to consider a 529 Plan.
Grandparents wanting to help pay for a grandchild’s education may with to consider a 529 Plan.

If you are a grandparent wondering how you can help pay for a grandchild’s future college education, you may wish to consider a Qualified Tuition Plan under IRC Section 529, otherwise known as a 529 plan.

Forbes’ recent article entitled “Estate Planning Primer: Qualified Tuition Plans” explains that there are two kinds of 529 programs that can help pay for college (and some other education expenses): prepaid plans and savings plans. The earnings on the assets in the 529 plan aren’t taxed, until the funds are distributed. The distributions are also tax-free up to the amount of the student’s “qualified higher education expenses.”

One kind of 529 plan is known as a prepaid plan. With this plan you buy tuition credits at the current tuition rates, even though your grandchild may not be starting college for several years. Because the cost of a college education rises every year, there is a substantial benefit to being able to lock in the cost at today’s rate.

The other kind of 529 plan is a savings plan. Even though the earnings in the plan are tax deferred and, to the extent used for qualified higher education expenses, tax-free, the amount available to pay the college costs depends on the investment performance of the plan. The more the funds in the plan grow, the more education costs can be covered. But if the value of the plan declines, fewer education costs will be covered.

Qualified higher education expenses include tuition, fees, books, supplies, and required equipment. Reasonable room and board may be considered a qualified expense, if the student is enrolled at least half-time. Distributions of income from the 529 plan in excess of qualified expenses are taxed to the student, and may result in 10% penalty.

You would designate you grandchild as beneficiary of the 529 plan at the time you create it. However, you are able to change the beneficiary or roll over the funds in the plan to another plan for the same or a different beneficiary.

A 529 plan may be used to fund a grandchild’s education at any college, university, vocational school, or other post-secondary school eligible to participate in a student aid program of the Department of Education.

Any funds you contribute to the 529 plan will be treated as gifts to your grandchild; however they qualify for the annual gift tax exclusion ($15,000 per person per year for 2020) adjusted annually for inflation. If you contribute more than the annual exclusion amount in a given year, you can elect to have the gift treated as being made over a five-year period starting with the year of the contribution.

While you may name yourself as custodian of the 529 plan, it is important to also designate a successor custodian, perhaps a parent of a grandchild, in the event you are not able to act as custodian.

Reference: Forbes (Aug. 5, 2020) “Estate Planning Primer: Qualified Tuition Plans”

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An Often Misdiagnosed Dementia

Lewey body dementia is an often misdiagnosed dementia.
Lewey body dementia is an often misdiagnosed dementia.

Many people had never heard of Lewy body dementia until it was reported in 2014 that this was the disease that afflicted Robin Williams. While Lewy body dementia and Alzheimer’s disease are the two most common types of dementia, those who have Lewy body dementia are often misdiagnosed as having Alzheimer’s disease or depression. As a result, they do not get the treatment and support they need.

Considerable’s recent article entitled “The second most common type of dementia often goes unrecognized” reports that in one study, nearly 70% of people diagnosed with Lewy body dementia visited three consultants before receiving the diagnosis. For 33% of people with the disease, the dementia was misdiagnosed and getting the correct diagnosis took over two years.

There are two different conditions associated with Lewy body dementia: dementia with Lewy bodies and Parkinson’s disease dementia. In dementia with Lewy bodies, problems with memory and thinking occur simultaneously with problems involving movement, like those associated with Parkinson’s disease. In Parkinson’s disease dementia, a person who has had movement problems resembling Parkinson’s disease for several years, then develops difficulties with memory and thinking.

In addition to memory, thinking, and movement problems, symptoms of Lewy body dementia include issues with alertness and concentration, hallucinations and paranoia, acting out dreams during sleep, low blood pressure when standing, daytime sleepiness and depression.

Because the symptoms of Lewy body dementia often resemble other conditions, research reveals that the first diagnosis is commonly incorrect. For example, in one study 26% of people who had Lewy body dementia were misdiagnosed as having Alzheimer’s disease, and 24% were determined to have a psychiatric diagnosis like depression.

We saw this first hand at our firm when a family member was suffering with this kind of dementia. It went undiagnosed until it was too late to treat it properly. We feel it’s important to get the word out to family members who might think their loved one is suffering from depression, Parkinson’s disease, or another kind of dementia.

Failure to properly diagnose a person with Lewy body dementia can result in delay in treatment specifically targeted for that condition. Also, with the correct diagnosis, patients and families can seek out resources, such as the Lewy Body Dementia Association, an organization dedicated to helping people living with this disease. This group provides education on Lewy body dementia, helps patients and families know what to expect, connects patients and families to support and resources and helps them find research opportunities.

For more information on dementia issues see https://www.galliganmanning.com/some-common-drugs-may-increase-risk-of-dementia/

Reference: Considerable (Aug. 14, 2020) “The second most common type of dementia often goes unrecognized”

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When to Update your Estate Plan?

Waiting too long to update an estate plan may lead to bad plans and hurt families. Here are some milestones when you should consider changes.

Many people say that they’ve been meaning to update their estate plan for years but never got around to doing it.   Our office is located near the hospital system, so we get a lot of calls for last minute changes, which is difficult, and sometimes not possible.  Worst of all, we occasionally have to probate out of date wills or administer old trusts that left complicated, unnecessary tax planning, unsuitable executors or trustees, or in some cases, beneficiaries the client meant to change, but never did.

As a way to avoid those scenarios, this blog will talk about when you need to review your estate plan.  This isn’t exhaustive and the best approach is to review the plan every few years, but these major life events often indicate a need to change your plan.  The list as follows comes from Kiplinger’s article entitled “12 Different Times When You Should Update Your Will” and gives us a dozen times you should think about changing your estate plan, as well as a few more of my own:

  1. You’re expecting your first child. The birth or adoption of a first child is typically when many people draft their first estate plan. In Texas the designation of a guardian for the child happens outside a will, but it is still important to provide a trust and trustee for that child in your estate plan as well.
  2. You may divorce. Update your estate plan before you file for divorce, because once you file for divorce, your estate plan and assets may not be able to change until the divorce is finalized. Doing this before you file for divorce ensures that your spouse won’t get all of your money if you die before the divorce is final.
  3. You just divorced. After your divorce, your ex no longer has any rights to your estate (unless it’s part of the terms of the divorce). However, even if you don’t change your estate plan, most states have laws that invalidate any distributive provisions to your ex-spouse in that old will. Nonetheless, update your estate plan as soon as you can, so your new beneficiaries are clearly identified and that any obligations created in the divorce are fulfilled.
  4. Your child gets married. Your current estate plan may speak to issues that applied when your child was a minor, so it may not address your child’s possible divorce. You may be able to ease the lack of a prenuptial agreement by creating a trust for your child in your estate plan to keep those assets out of the marriage.
  5. A beneficiary has issues. Estate plans frequently leave money directly to a beneficiary. However, if that person has an addiction or credit issues, update your estate plan to include a trust that allows a trustee to only distribute funds under specific circumstances.  It is often a good idea to create such a trust anyway in case issues arise in the future.
  6. Your executor or a beneficiary die or are incapacitated. If your estate plan named individuals to manage your estate or receive any remaining funds, but they’re no longer alive or suffering bad health, you should update your entire estate plan (especially powers of attorney).
  7. Your child turns 18. Your current estate plan may designate your spouse or a parent as your executor, trustee or other fiduciary, but years later, these people may be gone or not suitable. Consider naming a younger family member to handle your estate affairs.
  8. A new tax or probate law is enacted. Congress may pass a bill that wrecks your estate plan. Review your plan with an experienced estate planning attorney every few years to see if there have been any new laws relevant to your estate planning.  It is also a good idea to keep reading blogs like this one as we try to address significant changes that might affect you.
  9. You receive a financial windfall or loss. If you finally get a big lottery win or inherit money from a distant relative, update your estate plan so you can address the right tax planning. You also may want to change when and the amount of money you leave to certain individuals or charities.  Similarly, a significant financial loss may mean you can jettison unnecessary tax planning and can simplify your plan.  I find many people change their minds on beneficiaries if they think they will leave less money as well.
  10. You can’t find your original estate plan. This happens more than people realize.  If you cannot find your original Will or other estate planning documents, you should consider executing a new one.  First, if you can’t find it that typically indicates it’s so old it needs updating anyway, but in the case of wills you should probate the original.  It is sometimes possible to probate a copy, but that isn’t a given and you should avoid that scenario.
  11. You purchase property in another country or move overseas. Some countries have treaties with the U.S. that permit reciprocity of wills, but how well that works is another matter.  Transferring property in one country may be delayed, if the will must be probated in the other country first. Ask your estate planning attorney about how to address property in multiple counties.
  12. You relocate to a new state.  Estate plans don’t always need to change when you relocate, but there are nuances to each state’s estate and tax laws, so you should consult with a local attorney after you move.  For example, Texas is a community property state that changes how property is owned going forward for married couples and has no estate tax.  A new resident coming from a common law property state with a state estate tax like New York might benefit from a new plan.
  13. Your feelings change for someone in your estate plan. If there’s animosity between people named in your estate plan, you may want to disinherit someone or change your estate plan. You might ask your estate planning attorney about a No Contest Clause that will disinherit the aggressive family member, if he or she attempts to question your intentions in the estate plan.
  14. You get married (or remarried).  One milestone I like to point out that a surprising number of people don’t consider, is updating your estate plan after you get married or in the event you remarry.  Many people assume that their spouse becomes an automatic beneficiary of their estate plan, which isn’t true, although all states give some rights to the new spouse.  It is far better, especially in a second marriage where step children are involved, to update your estate plan to exactly what you want for you and your loved ones.
  15. Your own bad health.  One milestone I’m particularly sensitive to is your own bad health, especially cognitive health such as dementia or Alzheimer’s.  Many clients prepare plans when they are young that aren’t considering long term care, Medicaid or other planning, so that should be complete before incapacity prevents it.

Reference: Kiplinger (May 26, 2020) “12 Different Times When You Should Update Your Will”

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