Your College Savings Plan Is Missing the Most Important Thing: An Estate Plan
Brian Boswell, CFP® is a financial planner and college savings expert. One of his clients recently said, “We’ve been saving aggressively for college and feel pretty good about where we are. Even with the market down, we’re contributing enough that – whether it’s flat or up - we should be fine.”
“That’s great! You’re ahead of most families. So what’s your plan if one of you were to pass away?”
“Uh- we have insurance through work.”
“Okay, how much? Is it enough that you can continue to save for retirement, pay the mortgage, live your current lifestyle, and save for college?”
“Okay, we’ll come back to that. What if you develop a medical issue preventing you from working?”
The First Part Of Every College Plan Is An Estate Plan
An estate plan isn't only for when you die. A proper estate plan protects you and your loved ones during your life, which is why every financial plan begins with an estate plan: Do you have a will? A healthcare proxy? A durable power of attorney? A living trust? Are there other legal entities, such as specialized trusts, from which your family could benefit due to your living situation, potentially reducing your taxes and transfer risks? How about legal risk mitigation?
Only 1 in 3 Americans have a Will
Even a family of modest means benefits, especially when minors are involved. How assets are made available to the surviving spouse or named guardian will vary depending on whether or not you have a will, trust, or other legal documents. In some cases, the child or children may get unrestricted access to the assets when they reach the age of majority. Estate planning allows you to parent from the grave, putting guardrails on funds and restricting assets to specific expenses such as education or medical care. There are many reasons people don't have a will, but most of these "reasons" are just excuses.
Planning for the unexpected
There are only two certainties in life, the saying goes, “death and taxes.” However, illness is also an inevitability. Americans are at a far greater risk of becoming disabled during their working life than dying. In fact, one in four 20-year-olds will incur a disability lasting more than 90 days before they retire.
Saving for college is more difficult in the event of disability than death because a disability creates a financial loss plus an ongoing burden on the family’s resources. Medical bills pile on top of everyday expenses such as food and utilities. Saving for retirement changes due to the increased probability of medical complications, and resources for college savings can become strained if there’s anything left to save at all.
We don’t like to think about it, but death is unavoidable. You need to have a plan, especially if you have a family.
The need to cover higher education as risk via insurance is temporary
Matching the duration of a life policy can mitigate both financial risk and the immediate expense of the insurance itself. For example, if your child is two years old, then about 20 years remain until they would graduate college, so a 20-year term policy would make sense against the cost of college. If the beneficiary is twelve years old, you could significantly reduce your insurance premiums with a ten-year policy. You can layer policies for multiple beneficiaries to match the duration and reduce overall costs while protecting your loved ones.
Do you want to learn more about estate planning and how to start planning for your future? Book a Strategic Planning Session TODAY!