What kind of account should we start?

Question

One of our friends died recently. She is survived by her husband and their 10 month old daughter. She had a hard fight and all the bulk of her life insurance money is going to go to the funeral cost and the medical bills from the last 6 months (insurance crapped out). We would like to start a college fund for the baby, but what kind should we do? Savings account? Trust fund? I would like resources for starting an account with pros and cons of the different kind if possible, but also your own experience and recommendation.

Thanks

Answer 1

Put your money to work with a CD savings account.

Sorry to hear that:(

Answer 2

I second the 529 plan.  Besides everything that the previous poster answered, it will serve well in the sort of situation you describe.  If you just did a CD Savings account in your name, then if you die it will be considered a part of your estate.

The 529 would be considered your child's, and won't come into concern when settling the estate.  Also, if you have mulitiple children, and one doesn't go to college, you can use that money for the other child.  Also, one great reason to choose 529 over UGMA/UTMA is that if your child needs financial aid for college, the funds in the 529 are not considered.

There are lots of good plans out there.  Let me know if you need additional information.

Also, with life insurance, if the policy was owned by the husband, then it would have not been considered an asset of the estate.  Something to think about.  If you have or will have a policy, consult your insurance agent about this.

Answer 3

You may want to consider a 529 plan.  I have one for each of my kids, which I started shortly after they were born.  Just about every state has one, though some are better than others.  You don't have to use your own state's 529 plan, you can use other states' plans, although you might not get as much tax benefit.  The 529 plans have all kinds of options that are based on desired risk, age, etc.  It's a pretty good option in many cases.  We simply set ours up to pay a certain amount into each child's fund each month, and then let it do its thing.  That way we don't have to think about it, it just does its thing and we review the statements quarterly.  And it is easy for others to contribute to the college fund too.  Oftentimes for birthdays or such we have grandparents or relatives contribute some or all of their gift in the form of a contribution to the child's 529 plan.  They get a tax benefit from that too.  Anyway, that's one option that you may want to look at.