Look beyond cash savings to fund education, says Atlantic Trust

For many parents, education is the single largest expense of raising a child, which means smart financial planning is crucial

ATLANTA, July 8, 2014 /PRNewswire/ - Using a state-qualified tuition program or a trust is the best way to fund a child or grandchild's education, according to Atlantic Trust, the U.S. private wealth management division of CIBC (NYSE: CM) (TSX: CM).

Although grandparents or other relatives may be tempted to make direct payments or contribute to a custodial or prepaid college account to help offset a child or grandchild's education costs, there are limitations. It is possible that those funds could be diverted to other purposes or the funds might run out before the child's education is completed. And, the funds in a prepaid account could be forfeited if the child ends up not completing his or her education at that school.

"Since direct payments can only continue while you are alive, it is best to choose an additional funding strategy that can serve as a safety net if you pass away before the individuals you wish to benefit finish school," says Rebecca W. Milliman, senior wealth strategist for Atlantic Trust.

Qualified state tuition plans (also known as Section 529 plans) allow for funds to be set aside for individual family members while still allowing the account owner to retain some control. Money in a 529 plan is also federal tax-exempt, provided it is withdrawn to pay for college or graduate school. Other details will vary by state.

However, 529 plans are not for everyone. These single-purpose vehicles can work well for both parents and grandparents, but some families find them too limiting. A key disadvantage is that they require cash contributions despite the existence of other, more efficient wealth transfer vehicles.

One such vehicle is a trust, which provides the greatest flexibility over investments, the type of property contributed and the individuals that can benefit, says Ms. Milliman. While the desire to finance education might be a strong motivator for setting up a trust, grantors can also permit distributions for other purposes.

Ultimately, choosing the right education funding strategy will depend on what kinds of assets will be contributed, she says. Families can even mix and match assets: While 529 plans can be applied for tuition, room and board at college or graduate school, for example, a trust can pay other living expenses while the children are in school or can be used for private school tuition if the need arises before then.

Regardless of a family's specific goals, it makes sense to start planning early in order to minimize taxes and maximize the possibility of growth. Atlantic Trust has a variety of resources designed to help families understand the different strategies and options available. To learn more, read "Funding Education for Children and Grandchildren" on the Online Resource Center, or visit www.atlantictrust.com.

About Atlantic Trust

Atlantic Trust is one of the nation's leading private wealth management firms, offering integrated wealth management for high net worth individuals, families, foundations and endowments. The firm considers clients' financial, trust, estate planning and philanthropic needs in developing customized asset allocation and investment management strategies. Experienced professionals deliver a broad range of solutions, including proprietary investment offerings and a robust open architecture platform of traditional and alternative managers. Atlantic Trust operates in 12 full-service locations throughout the U.S. with $24.4 billion in assets under management (as of April 30, 2014). For more information, visit www.atlantictrust.com.

About CIBC

CIBC is a leading Canadian-based global financial institution. Through our Retail and Business Banking, Wealth Management and Wholesale Banking businesses, CIBC provides a full range of financial products to individual, small business, commercial, corporate and institutional clients in Canada and around the world. CIBC owns a 41 percent equity interest in American Century Investments®, a major U.S. asset management company, serving financial intermediaries, institutions and individuals, and acquired Atlantic Trust, a premier U.S. private wealth management firm, in January 2014. You can find other news releases and information about CIBC in our Media Centre on our corporate website at www.cibc.com.

SOURCE Atlantic Trust Private Wealth Management

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