Carrie Schwab Pomerantz
(SET ITAL) Dear Carrie, My husband and I would like to establish college funds for each of our three grandchildren and for any grandkids to come. Our eldest son has two children. Our middle daughter has one child, and our youngest isn't married yet. Is it best to split the money equally between the families, or is it OK to give more to the family with more children? --A reader (END ITAL)

Dear Reader, This is a great question that raises some interesting issues. When it comes to family dynamics, even the most generous intentions carry the potential for misunderstanding or even resentment. So you're wise to consider the "how" as well as the "what" before you finalize your plans.

Be clear about your intention

You mention the possibility of giving money to each family. For me, that brings up a question: Are you giving the money to your kids or your grandkids? That's important. If you want to give money to your kids, an equal amount to each sibling would probably be the fairest. (You can currently give up to $13,000 a year to any number of individuals without incurring a gift tax. A couple sharing gifts can give up to $26,000.) The problem with this approach is that even though you can explain that the money is intended for your grandchildren's education, you lose control. This approach also has some sticky issues because of the difference in family size and marital status.

Therefore, if your genuine desire is to help pay for your grandchildren's college tuition, it probably makes more sense to set up a specified college account for each grandchild. That way you know the money will be used solely for their education.

Decide how much to give

Ideally, it would be good to give an equal amount to each grandchild. If the kids are relatively the same age, that should be fair. Each account would have about the same time to grow. However, if, for instance, your son's children are considerably older, you could give a proportionately larger amount to them since they'll need it sooner.

Talk frankly with your family

The most important thing here is to talk openly with all of your children -- both married and unmarried -- about your goal. Let them know that you want to help provide a college education for all of your grandchildren. Discuss the best type of account to open. For instance, a 529 Savings Plan, which is controlled by you and has certain tax advantages when used for qualified education expenses, is one option. (Note that you can front-load a 529 Plan with five years' of contributions without incurring gift tax. You can also avoid the gift tax by paying the tuition directly to a school.)


Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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