I posted in this thread earlier today
http://forum.mrmoneymustache.com/investor-alley/how-much-to-save-for-kid's-education/msg376372/#new I am about to start the college savings process for my twins. Both my wife and I had our educations paid for and think the best gift you can give your child is a debt free start to adult life. I am not here to debate that point, I plan on fully funding my children's education through graduate school is they choose to attend.
Both my wife and I attended state schools, although my wife got her PhD from an Ivy, my SIL and FIL both went to Ivy's so we have a mix of state and Ivy education in the family, so I plan on having the assets put away to fully fund 2 Ivy League educations simultaneously. My children have not started school yet so it is too early to tell if the Ivy's are in there future however based on family history and "how advanced" they are so far it is a strong possibility.
Generally speaking my tax sheltered accounts are fully funded, and retirement is accounted for, my mortgage will be paid off by the time my twins are ~15 years old. We are FI by most people's standards just working for the mortgage and the college savings.
So on to college funding, all the 529 calculators pretty much says its ~$1000 a month to fund and Ivy education per kid. That's $24k a year in savings plus I need to do some catch up since they are not newborns. I can backload a bit since I will be mortgage free when they are 15, but that only gives me between 3 and 7 years not a lot of time to make it up. That is still pretty steep probably a bit more than the free cash I had planned to putting into college savings. Grandparents are also funding 529's which will buffer this not calculating for that as its not their responsibility, however if/when these accounts become substantial they will be accounted for. These accounts will become substantial based on our families.
Our problem is my kids will have there own assets and I'm not sure how to shelter/structure them. I know FAFSA looks at parent assets vs child assets differently and then Profile schools and 568 schools do things differently again.
So I know my retirement accounts are safe harbor off limits and my home equity is also not part of the calculation (some formulas look at it but only at 1.2x salary which is a small cap nowhere near the amount of equity we have). So my taxable assets are the only real concern and I am only expected to pay 5.64% per year, and bonus I have 2 kids same time so I get the max allowance so my taxable assets compared to my salary actually puts me in the aid realm for most schools to some extent. Now if we go the state school route the 529's will cover everything so I'm not worrying about it, however if they do make a Princeton or Harvard I am thinking I am going to run short and here is where my problem comes.
My kids have assets... A lot of them or they will anyway. They are the beneficiaries of an insurance policy that pays them ~$550 a month until they are 18, so based on a 7% return they will have just shy of a $250k each upon going to college. Their assets are measured at 20% so they will be on the line for everything... no institutional aid will be available. The insurance is actually paid to my wife in c/o my children we have no need for the money so we were just going to open up UTMA brokerage accounts for them once the amount built up enough to be worthwhile... Then I read the FAFSA stuff and said oh no.... that could be a huge mistake. So then I was thinking maybe a living trust with them as beneficiaries after they graduate at 25, gives me more control anyway make sure they are good with money... As long as the Trusts are revocable I think this keeps the assets in my name not theirs for reporting purposes, but if they are beneficiaries of my Trust still screwed.
Sorry kinda long winded... Not sure what do with my kids money now its not for me... I don't plan on spending on their college want it to be theirs when they are adults, UTMA Brokerage accounts will kill FAFSA down the road, Trusts might be an option but don't know enough, might just be a more complicated way to kill FAFSA and lose some Kiddie tax advantage in the short term.
So if you know more about Trusts and FAFSA or have any other ideas please feel free to let me know... I know my first world problems are very earth shattering. :P
-Mister FancyPants