Category: 529 Education Savings Plan

Make Certain Your College-Bound Kid Has Packed a Health Care Power of Attorney

You thought you purchased just about everything for your child for college, but don’t forget one more important item: a health care power of attorney or health proxy.

When a child turns 18, parents don’t have much authority under federal law to remotely access medical records or make decision. With the medical privacy law HIPAA, you 10-28-16need to have your child’s written permission.

CBS News’ recent article, “Don't send your child to college without this,” suggests a health care proxy. It’s a pretty simple legal document that gives you the authority to make medical decisions and access their records if they’re disabled. Talk about a critical back-to-school item!

A health care power of attorney is critically important when a child has a health emergency at college.

A HIPAA authorization allows you access to your child’s medical records, which are protected by the Health Insurance Portability and Accountability Act (HIPAA). Your child is an adult, so you can’t call the health center at college and get his or her detailed health information without an authorization.

The health care proxy is more complicated. The one signing it is giving another the authority to make medical decisions for them if they become incapacitated. An agent for health decisions is appointed with the proxy. The proxy covers a broad range of powers, and parents or other trusted individuals who are agents are allowed to speak with doctors, approve tests and examine medical records.

Prior to getting these forms, you should have a serious conversation with your college student on why the documents are important. The proxy talks about some unpleasant decision making—like specifying what treatment or care a person on life support wants and stipulating organ donation and other post-mortem issues. Some of the more detailed proxies have a questionnaire that runs through end-of-life or advanced “health care directive” decisions. As a parent, this is tough language to read, and these are difficult issues to discuss. Nonetheless, they provoke some serious thinking about quality of life in the event of a health emergency.

It’s important to know what the documents can and can’t do: they don’t ensure quality care, and you’ll still need to consult with doctors. Be sure you fully comprehend what these documents mean and how you can modify them.

Speak with your estate planning lawyer and appoint trusted family members or friends to make decisions if you or your spouse/partner can’t. You should also, at the same time, review your own estate plan. If you don’t have a will, powers of attorney or living trust, find out which documents are appropriate for your situation.

Reference: CBS News (September 9, 2016) “Don't send your child to college without this”

How to Plan For a Kid Who Can’t Handle Finances

Many parents face this issue, says NJ 101.5 in its recent post, “When you don’t trust a child with money.”

There are some children, regardless of age, who need help managing their finances. By the same token, there are also some children who are good with money who make mistakes upon inheriting a large sum of money all at once.

If you think that a child needs restrictions, it’s always a good idea to look into your options with an experienced estate planning attorney. If this is done to protect the child from himself or herself, there is really nothing unfair about this type of plan. In fact, this action may actually help and not be seen as “unfair” treatment. 10-20-16

If parents have concerns about a child’s ability to handle an inheritance, they can leave their inheritance in trust for the child’s benefit. When creating the trust, a trustee must be named. It probably shouldn’t be another child, which could create unrest in the family. Rather, you might designate a trusted family friend or advisor as trustee, or you could use a financial institution that provides trust services.

The terms of the trust can be customized to the child’s needs and could stipulate that he or she receive a fixed percentage of the assets each year from the trust. This alleviates much of the discretion on the part of the trustee regarding whether or not to make a distribution. Another option is to allow the trustee to decide the amount and timing of distributions.

Trusts are extremely flexible vehicles and can provide protection for beneficiaries, like a son or daughter who can’t manage his or her finances.

Reference: NJ 101.5 (August 31, 2016) “When you don’t trust a child with money”

Giving Grandkids Money for College

When a grandmother wants to give her two grandkids $50,000 each for college, there can be tax and financial aid consequences. The best way to go about this depends on what’s most important to the grandmother, says New Jersey 101.5’s article, “Several ways to gift money for college.”



If grandma just wants to help the grandchildren with their education, she could set up a 529 plan for each child and contribute $50,000 to each account. 529 plans are tax-deferred accounts that are used for education. If the kids are young, the account could grow tax-free for years before it’s needed.

It’s a very tax-efficient way to pay for education; however, there can be gift tax issues when setting this up. In general, grandma is permitted to give each child $14,000 a year without using up any of her lifetime gift/estate tax exemption. Nonetheless, there’s a special rule for contributing to a 529 plan. If grandma contributes the $50,000 in the first year, it’ll be prorated over the next five years at $14,000 a year—a limit with little effect because the federal estate and gift tax exemption amount is now $5.45 million.

Grandma needs to remember another option: the payment of tuition directly to the educational institution is not a taxable gift at all, regardless of how large the payment. Bear in mind that the direct payment of tuition could jeopardize the child’s financial aid eligibility. If this is a concern, a 529 plan account is a better option, but grandma—not a parent—must be the custodian. If the parent is the custodian, the plan will most likely be deemed an asset of the parent, and this would have to be reported on the child’s financial aid application. Once payments were made out of the account, this would be considered income to the child and could put his or her financial aid in jeopardy.

Planning for financial aid can be tough because each school has its own set of rules. Grandma could also just wait until the kid is out of school completely and then give him or her the funds to pay his or her student loans. If the child is likely to get financial aid, she could make gifts for other purposes like a down payment on a house or a wedding—instead of paying for school.

Reference: New Jersey 101.5 (July 14, 2016) “Several ways to gift money for college”

Moving 529 Money Between Beneficiaries is a Piece of Cake

If you have multiple grandchildren with 529 college-savings accounts, can you move some money from one grandchild’s account into the oldest grandson’s account, since he’s starting college in the fall? Kiplinger says you sure can in “How to Transfer Money Between 529 College-Savings Accounts.” 8-22-2016

As the owner of the account, you have the ability to change the beneficiary on the account from one eligible family member to another without any type of penalty or tax. The definition of an “eligible family member” is based on the individual’s relationship to the beneficiary. This will include the beneficiary’s spouse, child or stepchild, sibling or step-sibling, parent or stepparent, aunt or uncle, niece or nephew, an in-law, the spouse of any of those relatives, or a first cousin. You can review the entire list in IRS Publication 970, Tax Benefits for Education.

The way that you make the transfer will vary by plan, but in almost all cases, you should be able to move any amount of money from one beneficiary to another—such as transferring 50% of the money from one grandchild’s account to another grandchild’s account.

For example, at Fidelity, you’d need to complete a beneficiary change form with both of the account numbers. You would have to open up a new account if you didn’t already have one for the new beneficiary. Also, if you decide to do a partial rollover, you can designate the specific amount of money to move from each investment within the account. You also have the ability to say where that money should be invested for the new beneficiary’s account if different from the allocation directions on file for the account.

529 accounts don’t have a limit on how much you can transfer or how often you can transfer funds between beneficiaries, provided the account balance is within the plan’s maximum contribution parameters. The maximum contribution limit will vary by plan, but they’re typically between $235,000 and $370,000 in most states—with a few states having higher limits.

Be proactive and don’t wait until the last second when college bills are due to make these changes. Contact the plan administrator to talk about your options before you’ll need the money. You never know if the paperwork will be delayed longer than you expect or if there are unforeseen administrative requirements.

Reference: Kiplinger ( June 28, 2016) “How to Transfer Money Between 529 College-Savings Accounts”