The Challenge

When a client has a child, we encourage them to start putting away money each month in a tax deferred 529 account. This is often a challenge for young families who are balancing buying their first home, paying off their own college debt, and just managing cash flow in general. For this reason, grandparents are often interested in helping out.

One particular client had a large amount of generational wealth he wished to gift toward higher education for his 15 grandchildren. Morgan Rosel worked with his estate planning attorney to come up with the best possible plan of action. At the time, he was over the estate tax exemption amount.

Our Solution

Our recommendation accomplished 3 major feats.  We were able to structure a scholarship program for all of the grandchildren, reduce our client’s estate tax liability, and preserve his current gifting program already in place outside of this scholarship.

There are strict laws governing how much you can give to a non-spouse each year.  Therefore, we recommended the grandfather establish a scholarship program with a 2-pronged approach.  Set a maximum dollar amount he would pay each year while a grandchild was in college, which could only be paid directly to the educational institution, and simultaneously establish 529 plans for each grandchild that would cover any amount that couldn’t be paid directly to the educational institution. 

This strategy allowed for him to continue his normal gifting outside of this scholarship along with tax efficiently paying for his grandchildren’s college and reducing his estate tax liability. 

The Results

Estate planning can feel exhausting for clients who have a wide variety of assets and multi-generational wealth to consider. This solution, while complicated for the team at Morgan Rosel, was meant to make the gifting process simple for the client.

What’s more, we communicate with our client’s grandchildren and their parents directly to disperse scholarship fund money and discuss parameters for each school year. It’s a great way to get teenagers interested in investing and committed to saving their own money. We have great relationships with our client and his family members and feel great pride in knowing we helped to make higher education possible for 15 children while preserving enough wealth for our client to continue living comfortably and minimizing his estate tax liability.

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