How To Tank Your Estate Plan: Parent PLUS Loans
Not all parents take the same approach to estate planning, but everyone who has children takes their children into account when developing an estate plan. Some live well below their means while dreaming of leaving a generous inheritance for their children and grandchildren. Others maximize their annual gift tax exclusion and set up revocable trusts, with the goal of seeing their descendants enjoy their generational wealth while the testators are alive. Others choose not to provide their adult children with any financial support, not even in the form of an inheritance. Of course, the question of “trust fund or inheritance” sounds like a high class worry for most parents, whose desire to help their children achieve their educational and professional goals is no less strong than that of the one percent. If you pay for your children’s education out of your own savings, or give them money after they graduate to help pay their student loans, you are one of the lucky ones. Many parents choose to take out student loans for their children’s education, seeing this as less risky than encouraging young people who have only become eligible to vote since the most recent presidential election to borrow tens of thousands of dollars. Of course, taking on a large and risky debt in middle age can sabotage your estate plan, but if you have already taken out a Parent PLUS loan, a Maryland estate planning lawyer can help you pick up the pieces of your financial future.
Look at the Big Picture and Beware of Parent PLUS Loans
Parent PLUS loans are federal student loans available to parents to help fund their children’s undergraduate education. Like other types of federal student loans, the PLUS program offers an income-based repayment program to borrowers who struggle to keep up with payments (as many of them do, given how easy it is to get approved for a Parent PLUS loan). Under this repayment program, you pay 20 percent of your disposable income for 25 years, and the remaining balance gets forgiven. Think about how old you will be when your children graduate from high school, and then add 25. This should be enough to convince you that Parent PLUS loans can put a dent in your estate plan.
Student Loans and Your Estate Plan
If you have borrowed money for your own education, you will need to figure the payments into your own long-term financial plans, including your estate plan. If you are considering taking out parental loans to pay for your children’s education, think twice. From an estate planning perspective, it is better to help your children by using money you have than money you don’t have. If income-based repayment on a Parent PLUS loan is already part of your reality, your estate planning lawyer can help ensure that you can still afford necessities.
Let Us Help You Today
A Washington DC estate planning lawyer can help you be realistic about your current financial hardships when developing your estate plan. Contact Tobin, O’Connor & Ewing for help today.