Becoming a Grandparent

Congratulations on the new addition to your family! Whether you're new to grandparenthood, or a seasoned "professional," now is the time to revisit your financial plans. Here we'll provide you with some tips to help you plan for your grandchild's financial and educational future.

Develop an estate plan
Now that a new family member has arrived, you may want to take this time to begin developing or modifying your estate plan. In doing so, you'll want to take into account:

• Your will. If you don't have a "will," be sure to consult an estate attorney who can assist you with developing one. A will allows you to control how your assets are divided among your heirs after your death. Without one, state laws govern how your assets are distributed between your creditors and your heirs, and can create unnecessary confusion, stress and difficulties for your loved ones.
  
  If you already have an established will, consider amending it to include your new grandchild.
  
  
• Estate taxes. If you've included your grandchild in your will, consider the impact estate taxes may have on the assets you pass on to your grandchild. Keep in mind, not all estate taxes fall within the taxable range. For 2006, estates worth more than $2 million are subject to estate taxes. (This limit will increase to $3.5 million in 2009).
  
  
• Trusts. Consider establishing a trust fund for your grandchild's college education. You are permitted to make a tax-exempt gift of up to a specified amount each year. By gifting money, you could potentially reduce the size of your estate—and its associated estate taxes. Consult a tax advisor regarding the tax implications of establishing a trust, and consult your estate attorney who can help you select and set up a trust that makes sense for your individual situation.

Save for your grandchild's college education
Secure your grandchild's educational future by helping to fund his or her college education. Even contributing a small amount on a regular basis can help compound your grandchild's education fund.

Here are some things you may want to do before you open an educational savings account for your grandchild:

• Talk to the parents. Open up a discussion with the parents about their plans for their child's education. How will they save? Should their child be eligible, will they consider financial aid as an option? Keep in mind ahead of time that saving funds in an account established in the child's name can ultimately reduce the amount of financial aid the child receives. To prevent this from occurring, you may want to consider establishing an account in your own name instead.
  
  
• Learn what types of accounts are available. When it comes to saving for a college education, there are a wide variety of accounts to choose from. There are accounts designed specifically for college savings, such as a 529 plan. Other types of accounts such as a custodial account, individual account or Roth IRA can also be used as a way to save for your grandchild's future education. An investment professional can help you select an account that's suitable for you and your grandchild's unique situation.
  
  
• Safeguard the funds you've accumulated for your grandchild's college education. You'll want to keep in mind that some types of accounts, such as a custodial account, may become the property of the child when he or she reaches a certain legal age. College savings accounts such as 529 plans allow you, the donor, to stay in control of the account. You'll want to be sure you're aware of all the features of an investment account before opening one.

Use our Education Planner to help you determine how much money you'll need to set aside. An investment professional can discuss with you the types of accounts that are available for college savings, and help you select one that's suitable for your situation.

Keep you own retirement funds in check
It's important that you maintain a reasonable balance between saving for your grandchild's college education and saving for your own retirement. After all, your grandchild may be able to rely on financial aid to pay for tuition—but you may not be able to rely on others to get your through your retirement years.

Protect yourself and your grandchild with insurance
Consider the following types of insurance to protect you and your grandchild:

• Life insurance. If you have a life insurance policy, consider adding your grandchild as a beneficiary. If you don't have life insurance, you may want to consider establishing a life insurance policy to secure your grandchild's as well as other family member's financial future. Talk to an investment professional about life insurance.
  
  Life insurance can provide your family with financial protection in the event of your untimely death and can help them pay for expenses such as funeral costs, medical bills and estate taxes.
  
  
• Long-term care insurance. Have you thought about the level of medical attention you might need in the event you require long-term care in the future? Most health insurance benefits may only cover long-term care in a nursing home and coverage may be minimal. However, a long-term care insurance policy can provide you with alternative benefits that a standard health insurance policy may not cover, such as coverage for home care, adult day care, hospice, assisted living and nursing homes.
  
  Having a long-term care insurance policy can help you and/or your family members to cover expensive costs associated with long-term care should the need arise.

Ask for help
An investment professional can help you plan for your grandchild's financial and educational future.

To schedule a free consultation, find an investment professional at a WaMu financial center near you.