Hamilton, Grinnell, or Gustavus Adolphus?

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@privatebanker - Before paying one cent of the grandparents’ gift to either the college, the parents, or lacscn, the family needs to get information specific to the financial aid process. On the annual aid applications, the student will need to report any money paid for their support from sources other than the parents. This can skew the results of the aid calculations, and the student can end up with a higher cost of attendance because of loss of need-based aid. That is why I recommended that @lacscn take the discussion about the best way to receive the money to the experts in the Financial Aid Forum.

It may turn out that the best option is to borrow now, and receive gifts from the grandparents after the FAFSA and CSS Profile are filed in the fall of junior year. 15k from each of Gma & Gpa to each of mom, dad, and student at that time would be 90k and could be applied by them directly to outstanding loans. Arriving after the aid applications are filed will keep the money invisible from the aid process.

Other strategies that I have seen rcommended in the past have included borrowing the money from the grandparents who later forgive the loan (either all at once or in stages), and running the contribution through a 529. Each strategy has different advantages and potential disadvantages. This family has a few months to examine all of their options before the first semester payments are due.

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Sure. With small gifts with check the best path. But If you don’t want to turn a 100k gift into 140k gift for the generous grandparent, discuss the tax and estate planning in place. Usually an issue for gpatrents with 100k to spend on the process. Whether you give to parent or to school directly the gift tax rules apply.

But definitely seek out professional guidance.

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Given recent developments, I’d recommend you look carefully at the figures before you make a final decision. Bryn Mawr is an excellent school, but if you truly love any other college from your list (Hamilton?), it now seems your finances could be sufficient for that choice as well.

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“But If you don’t want to turn a 100k gift into 140k gift for the generous grandparent, discuss the tax and estate planning in place.”

I think the concern for OP is the effect of the gifts on her financial aid, not the gift tax issues for her grandparents – since under current law, the grandparents wouldn’t owe one cent of gift tax until they’d (collectively) made more than $22 million in taxable gifts! Now, they can use certain techniques to avoid the necessity of filing a gift tax return, but the gift tax itself is not an issue here.

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That’s not exactly correct. We don’t know if they have assets or own business interests that has been subject to or part of future planning re lifetime exemption. It’s just a conversation to have. And of course it has to be considered in relationship to the other factors. I don’t know anything about how a direct pay gift would effect etc but the gift to the parent would not. Seems counter intuitive . But 25k in a single year from an individual still require a gift tax return to be filed even if no tax is due. Not the case for direct payments. But clearly have to look at total cost impact.

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My guess is if the grandparents have enough assets to be concerned about gift taxes (estate worth $22million or more) they are also astute enough to either know the tax consequences or seek out help. I also don’t know if a 17/18 year old should be questioning his grandparents about their tax strategies when generously given a gift. At least it isn’t what I’d want my kids to do if they were in the same situation. :slight_smile:

Yes, how it affects FA is the real concern here.

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You’d be surprised.

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Something a lot of people don’t think about - if your grandparents are elderly and do not have funding for potential long-term care, they should carefully consider the gift because, if they ever needed to apply for Medicaid long term care, a gift within the past 5 years could make them ineligible for a time. There might be an exception if tuition is paid directly - I’m not sure, but you might want to consult an elder law attorney.

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I haven’t read the entire thread so forgive me if I am too late. I noticed you want to continue playing violin. My daughter passed on Grinnell although she did really like the school. she felt the level of the orchestra was too low for her interests. I know its a small thing but if it helps narrow the field I thought I’d mention it. Lessons however were free. If it is important to you-you might want to think about it. She also had some strong other choices.

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What was the decision

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@privatebanker Bryn Mawr!

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@lacscn: Wishing you the best of luck at Bryn Mawr!

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@doschicos, I’m pretty sure that gift tax doesn’t relate to the size of your estate, but the size of the gift. It kicks in when you give more than ~$14K in a year to a person. If you pay tuition directly to a 529 or a qualified institution that does not count toward the annual gift max. If you pay other things (including room & board to the college) or pay it straight to the student, it does. The main thing is, this applies to everybody, not just people with $22m in assets!

But, obviously, OPs grandparents should get advice from an actual tax person :slight_smile:

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@collegemom3717 That’s incorrect. It’s both actually because there is an interplay between the gift tax and the estate tax. The federal gift tax exists for one reason - to prevent citizens from avoiding the federal estate tax by giving away their money before they die. The current exemption amounts make that an issue only for people with individual estates exceeding $11 million and joint estates exceeding $22 million.

You can give $15k per person per year in 2018 (not $14K, it has increased) without it having to be REPORTED. You don’t pay tax above $15K in that given year, you just report it on a form with your tax return and that amount goes towards the estate exemption amount at death. From the link I previously provided:

“In addition to the annual gift tax exclusion, gift givers should be aware of the lifetime exemption amount. As the name implies, this amount refers to the amount an individual can give during their entire lifetime. Here’s how it works. If, during any year, your gift is above the annual threshold, you must report it as a taxable gift on IRS Form 709. In that case, you would apply the gift to your lifetime exclusion from federal estate tax.”

The lifetime exclusion for 2018 from federal estate tax currently set for 2018 is $11.18 million per person (doubled by the current administrations recent tax bill - the rich people thank them). Double that for a married couple. So, bottom line, most Americans, given the size of their estates, don’t need to worry about it. The very wealthy do. IMO, the vast majority of folks with those assets are aware of how this all works. I’ve seen a lot of misunderstanding about it based on several threads over the years where this comes up.

Also, the point I and others made is that by paying directly to the student or directly to the institution, whether or not one needs to worry about gift and estate taxes, there is a high chance it would affect need based financial aid. I’d worry more about the financial aid impact of how grandma and grandpa will pay for college than about the gift tax.

If anyone wants to read up on gift taxes and how they work, there is plenty online but a lot of the articles don’t reflect the 2018 limits but here is one article that does:

https://www.thebalance.com/gift-tax-exclusion-annual-exclusion-vs-lifetime-exemption-3505656 There is one small error in this article where they mention $15K in December and it should be $5K.

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@doschicos - that was really helpful! thank you. I didn’t realize that the annual limit is the reporting amount, and the reporting only matters if there will be more than $11m/$22m overall estate. We have been trying to find a way to help one of lot, and were worried about a tax penalty. Thanks again!

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@lacscn

Woo hoo! congrats!