Saving For Your Grandchildren's College Education

Q. What are the best ways to save for a college education? One grandchild is 5, another is 12 and one is 16. Thanks for any suggestions you have.



A. There are several different ways. 529 plans allow you to put up to $100,000 into accounts for your grandchildren all at once and the earnings are tax-free when used for college. The downside is they have higher fees and are pretty restrictive.

You can gift money to the child (custodial account) and then that money can be invested on their behalf. This offers great flexibility and has some tax advantages. The downside is the money automatically becomes the child's when they reach 18.

Lastly, you can keep the money yourselves, but allocate it to your grandchild's education. If you want, you can set up a separate account (in your name) and have them as the beneficiary. This allows you complete control and offers complete flexibility.

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Rental Property: When Risk Overshadows Potential Profit

Q. I would like to put my primary home for rental for 2 years as I would be working on Mission abroad. I would need your advice whether I should take a property management service company who would lease the house for a profit net of their one time fee of half of the house rent plus 10% of the monthly rental or I rent it out to my good old friend without profit (same amount as my mortgage payment) whom I know would take good care of the house (all I have to worry about is the property tax).



Should I sacrifice the headache I might get from a bad tenant or mismanagement of the property management company, or it is worth it to sacrifice the profit and avoid the headache? Taking all calculations including property tax and gains on rental income, I would have a net profit of $300 a month, that is, if I have good tenants and property manager.

A. I was great to hear from you. You have some very good questions.

You mention that you should clear $300 a month using the property management company. The question is what percentage of the rental amount is that? If your profit is 25% of the rental amount then each month the home is vacant will eat up 4 months worth of profit. Throw in some repairs and your profit may go down significantly.

The answer depends on your financial situation. If you are able to meet your goals with renting it to strangers then you should strongly consider renting it to someone your trust.

What type of mission work?

Q. Thank you for your email.
I recalculated everything again and came up with different scenarios.

The best scenario is to have good (no guarantee) tenants and a reputable property manager (no one could recommend a good one) and still have 15% profit of the rental amount.

The worst scenario is to have (maybe) bad tenants and a property manager that would just eat my profit with his fees and unknown repairs as their agreement do not indicate the limits of repairs and purchases that they could procure on owner's behalf (except extraordinary repairs of $15,000 and above where it is mentioned that approval is needed from Owner).

This is my primary residence and even if I go on mission (I work for the United Nations Field Missions for Programme Development), I can manage to pay the mortgage payments. Do you think it is worth to take the safe side and rent it to my trusted friend who would pay the same amount of my mortgage payments?

How come I have been reading articles on the Internet about the "glory" of having a rental business or renting a house as a good investment? Am I missing something here?

A. I would stick with your friend, it's not worth the risk.

Rentals can be a good investment if you can do the management and the maintenance yourself.

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The Gift That Keeps Taking?

Q. My spouse and I received a $10,000.00 CD in my spouse's name several years ago as a gift; this was given to us by my spouse's mother. We have claimed the interest on this CD on our federal tax returns every year. This year 2005 when I began to do my federal tax return I realized that I did not have the 1099 INT. When I called my mother-in-law about this, she said, "when the CD matured that she removed this from my spouse's name." We do not understand how this could happen. My mother-in-law was not named on this CD as an owner of this money. If this CD/money was a gift, how is it possible for her to get control of this money without the signature of my spouse?



A. This is not an unusual situation. I saw this quite often the short time I worked at a bank.

You are right in that your mother-in-law cannot do anything with the CD. The problem is that the person working at the bank that she has been dealing with either doesn't have a clue or may have thought it was initially put in your wife's name by mistake.

Either way, the bank screwed up and is liable for that transaction. If you were to go to the manager and ask what happened you may get relief. If not, ask to talk to the bank compliance officer who should have a better understanding of ownership issues.

The real rub comes in how your actions will affect you and your wife's relationship with her mother. If that isn't a concern then you WILL get that money bank and it will be taken away from the mother-in-law.

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Living Will and Outstanding Debts

Q. Good Morning...My father's health is slowly deteriorating, unfortunately. It's inevitable that one day he will leave us. He has a Living Will. My question is, as his children, will my brothers and I be held responsible to his creditors for any outstanding debts? Thank You for any information you can provide...


A. First, a Living Will has to do with what his end of life medical wishes are and has no effect on the settlement of his estate.

Second, his creditors can not come after the children unless the co-signed for the loan or were in some other way involved in the debt. If the debt is secured by an asset like a house or car, the creditors can file against the estate in an effort to get their money. If there isn't any money in the estate then there isn't anything to pay the creditors.

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Find a wealth of information at Jeff's website.