19 Aug Gambling with inheritance and college bills

 Q. I know I can’t borrow for retirement but I really want to contribute to my kids’ college educations. I don’t have the cash to set aside now but eventually I’ll get a sizable inheritance. What do you think about taking college loans in my name or using home equity, then paying it off when I get the inheritance?

A. Knowing you may someday get an inheritance can take the pressure off your finances. The problem? There is no guarantee you will ever get the inheritance.

The strategy you’re suggesting means you’re spending money don’t have and you may never get, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“You are potentially destroying your retirement on the hopes that someone will die and save you,” he said. “What if they get sued, need long-term care or live to be 110? What is your plan then?”

No banks give out retirement scholarships, so folks must be judicious about the delicate balance of attributing savings to both college and retirement, said Debra Morrison, a certified financial planner with Empowered Retirement in Lincoln Park.

“While inheritances are never guaranteed, if you insist that your well-endowed loved one will not need part or all of that inheritance to provide for themselves instead, you may choose to utilize either your home(s) or investment portfolio for college borrowing purposes—interest on the former deductible up to $100,000, on the latter offsetting investment income—rather than personal loans or credit cards, whose interest is not tax-favored,” Morrison said.

She said because no amount of parental lecturing can instill the same value-of-money lessons that self-borrowing instills, Morrison would rather see your children finance the education through loans and jobs — as she did. Later, you can give the kids a portion of the potential inheritance when it arrives, which they can use to repay their loans.

The cost of the college they attend should be a factor, Lynch said, calling education an investment — but the investment of the child, not the parent.

“If you can’t afford it, start with a county college to get their core requirements done,” he said. “In their junior year, they can still transfer to another school and get a diploma from that school. It cuts the cost tremendously and you can really see if any additional investment is worth it.”

Lynch said he’s a huge fan of in-state schools because of the savings.

“Most private schools, in my humble opinion, are simply not worth the additional cost — with the exception of Ivy League,” he said.

Morrison said with two big financial goals, you should adjust the type of savings plans you use based on the ages of the college-bound person and the retirement person.

“The 80+ year history of returns favors the stock market over the bond market, yet the timing of the goal dictates what investments are most appropriate,” she said.

She recommends funding any goal that’s more than 10 years in the future with a diversified portfolio of 100 percent stocks, including U.S., international, large- and micro-caps. For shorter term goals she recommends bonds or a combination of bonds and stocks.

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This story was first posted in August 2015.