Securing Your Grandchildren's Financial Future: Suze Orman's Wise Advice

Suze Orman, the renowned financial expert, recently shared her insights on the best approach to securing the financial futures of one's grandchildren. In a conversation with a woman named Cheryl, who was considering opening brokerage accounts for her four grandchildren, Orman provided a thoughtful alternative that prioritizes long-term stability and control over the funds.

Unlock the Power of Generational Wealth: Suze Orman's Guidance for Grandparents

Understanding the Risks of UGMA and UTMA Accounts

Orman began by explaining the mechanics of Uniform Gifts to Minors Act (UGMA) and Uniform Trust to Minors Act (UTMA) brokerage accounts. These accounts, while seemingly straightforward, can pose challenges when it comes to maintaining control and ensuring the funds are used for their intended purpose. Orman highlighted the fact that once the child reaches the age of majority, typically between 18 and 25, they can access the money and use it for any purpose, potentially undermining the grandparents' vision for the funds.

Navigating the Impact on Financial Aid Eligibility

Another crucial consideration that Orman raised was the potential impact of UGMA and UTMA accounts on the grandchildren's future financial aid eligibility. These accounts are considered the child's assets, which can complicate their ability to secure educational funding, potentially limiting their access to higher learning opportunities.

Empowering Grandparents: Orman's Alternative Approach

To address these concerns, Orman suggested an alternative approach that would give Cheryl more control over the funds. Instead of opening UGMA or UTMA accounts, Orman recommended that Cheryl open a separate account in her own name, with the understanding that the money is intended for her grandchildren. Additionally, Orman advised Cheryl to create a trust with specific instructions on when and how the grandchildren can access the funds, ensuring that the money is used in alignment with her goals.

Safeguarding the Future: The Benefits of a Trust-Based Approach

Orman's reasoning behind this trust-based approach extends beyond the financial aid implications. She expressed concern about the potential for the grandchildren to misuse the funds, whether through developing a drug problem or making unwise purchases. By maintaining control through a trust, Cheryl can have greater assurance that the money will be used to secure her grandchildren's financial futures, as she had intended.

Exploring the Advantages of 529 Plans

For those specifically interested in saving for their grandchildren's education, Orman suggested considering a 529 account. Unlike UGMA or UTMA accounts, the original owner of a 529 plan maintains control over the funds until they are withdrawn, helping to ensure that the money is used for its intended purpose – the grandchild's education.

Seeking Professional Guidance: The Value of Collaboration

While Orman's advice highlights the potential pitfalls of UGMA and UTMA accounts, she acknowledges that opening such accounts for one's children or grandchildren is not inherently a bad decision. In fact, it can be a generous gift that helps young adults get a financial head start. However, Orman recommends seeking the guidance of a financial advisor or tax consultant to determine the best approach based on one's unique circumstances and goals.By following Suze Orman's thoughtful guidance, grandparents like Cheryl can navigate the complexities of securing their grandchildren's financial futures, ensuring that the funds are used to support their long-term well-being and educational aspirations.