Feature: Bringing Grandparents into the Picture

With tuition costs rising each year, an increasing number of grandparents are helping to pay for education costs. That is a welcome development, especially for day schools striving to increase the percent of expenses covered by net tuition, while remaining accessible and attractive to students of all incomes.

Mervyn Myers, Development Director at Yeshivat Rambam in Baltimore, says a P.R. push helped increase the number of grandparents paying tuition this year--sometimes for multiple children. And with increased grandparent participation came a decreased need for aid. "Except for one or two cases there is no question that if the grandparents were not paying part or all of tuition, the parents would have applied for financial assistance," says Myers.

Why grandparents? For one, their financial support is consistent with grandparents' traditional family role as educators (v'shinantam l'vanechah). Day school education is a multi-generation concern. The more day schools can make the case to parents and throughout the community for the role grandparents play in Jewish continuity, the more likely grandparents are to support day school education. Print out this eletter and share with your school's families in order to raise awareness of this trend.

"Grandparents have always been enablers of Jewish family values. They make gifts to their grandchildren to pay for camps, trips, and family holidays. Now, we need grandparents to help finance the Jewish education of their grandchildren. They will thereby enjoy, during their lifetimes, the satisfaction of watching their values being passed down to their descendants," says Matt Maryles, former president of the Yeshivah of Flatbush, member of the board of the Gruss Foundation, and a grandparent of many day schoolers.

Meanwhile, new tax incentives are making tuition payments more enticing to grandparents. Under federal law, gifts to an individual of more than $12,000 must be reported to the IRS. And a gift tax of 46 percent goes into effect if a person gives away more than $2 million during his or her lifetime. However, tuition paid directly to a school is not considered a gift, so it is not subject to either restriction. Note that room and board, textbooks, and other costs can be taxable.

While direct tuition is not considered income tax deductible, paying a child's tuition can serve as a significant wealth transfer tool. This is particularly significant as parents of baby boomers are poised to transfer unprecedented amounts of wealth, and will seek tax-efficient ways to do so.

"For many of my clients, the key issue that they face is wealth transfer," explains investment advisor and money manager Harold Simansky of Simansky Investments, LLC in Brookline, MA. "This is what makes grandparents paying tuition such a great fit." Simansky believes the biggest obstacle to more grandparents following this course of action is knowledge. "I believe that if more grandparents knew about the great tax and estate advantages grandparents receive when paying a grandchild's tuition, more would."

Schools can also create opportunities for grandparents to invest long-term in day school education. Some independent schools, for example, are launching prepaid tuition programs (see Q&A below). This can help grandparents transfer wealth with reduced tax liabilities, while giving schools a guaranteed tuition and increasing cash flow. Schools can also help build their endowment using charitable remainder trusts. Grandparents and other family members can create an irrevocable trust, with the annual income designated towards a grandchild's tuition. Once the grandchild has graduated, the "remainder" of the trust stays with the school to help build its endowment. In these programs, grandparents receive an income tax deduction for the gift and may reduce potential estate taxes by removing highly appreciated assets from their estate.

Sharon Kamber, Associate Head of School at Donna Klein Jewish Academy in Boca Raton, FL--whose own grandchild is enrolled at the school--says that while grandparents are "still an untapped source," they are more important than ever. In addition to having a Grandparent's Day for the past 13 years, the Academy has created a specific "grandparent committee," and its annual fund brochure will also target grandparents. "We are starting to see grandparents come forward because they are committed to what we represent, and they want to see their heritage passed on," Kamber says.

Q&A with Terry Moore, Director of Consultants, ISM

Prepaid Tuition Programs:  An Option for Some Families

What are the systems that a school needs to have in place in order to collect multiple years of tuition up front?
There's really only one system needed. Make certain that you have a Payment in Advance (PIA) policy, and follow it every time. Consider including the following factors:

1. Payment in advance does not guarantee matriculation or continued enrollment in the school.
2. When calculating the PIA, add a 5%-6% annual increase to cover the increased annual costs. Don't assume that interest earned from PIA will cover increases.
3. Consider the policy for the child who is not able to continue enrollment at your school. The IRS does allow transfer of funds to another educational institution, but not to the original payer. The school's policy must consider this fact and decide whether or not it will transfer funds.
4. Clearly delineate that students who benefit from PIAs are not entitled to any additional rights, or privileges over any other students.

Given the trend among some independent schools to accept prepaid tuition from grandparents and other family members, is there concern that this practice might jeapordize a school's independence?
ISM sees no reason for a school to avoid utilizing the advance tuition payment strategy.  Apart from tax advantages to family members, prepaid tuition increases a school's cash flow; guarantees a full paid, multiple-year client; and puts the school fully in control of the money once payment is received.

Do you have any additional advice for schools considering Payments in Advance?
In addition to writing a PIA policy, seek legal advice and ensure consistent implementation.

Financial Management Community of Practice Update

PEJE's Community of Practice (CoP) for lay leaders and professionals with an interest in financial management kicks off the fall with a number of conference calls. A CoP is a group of people with similar responsibilities and a shared goal--to improve their practice. Guided by a facilitator, they "meet" during regularly scheduled conference calls, via a listserv, and in person, when opportunities arise (e.g., the PEJE Assembly). Through this peer-to-peer collaboration, members of the CoPs are able to: generate knowledge directly related to the work they do; utilize that knowledge back in their schools; and reflect on results in order to make further modifications, as needed. This iterative cycle yields more knowledge that can be widely disseminated to the field.

Upcoming calls:

Please contact Stephane Acel for call-in details or more information.

Working with Your PTO
Wednesday, September 20, 1:00-2:00 pm EST

We'll discuss best practices to improve oversight while maintaining parent engagement. To help us prepare the call, please complete a five minute survey. A short article will be distributed before the call.

Implementing a Salary Broad Banding Program in Your School
Thursday, October 26 3:00-4:00 pm EST

The last installment of a two-part discussion with ISM's Terry Moore, this call will focus on how to integrate broad banding into schools. Notes from part one of this series, in which Terry introduced a professional development based compensation system that provides incentives for faculty performance and improvement, will be distributed prior to the call.

Further Reading

There's a growing trend of grandparents helping to foot tuition bills for private school, according to this May 1, 2006 overview from The New York Sun.

Learn how a recent IRS ruling allows high-income individuals to cut their tax bills by prepaying tuition for multiple years, according to this Wall Street Journal story from February 15, 2006.

Harold Simansky's 2004 book, College Costs How Much?! The Workbook to Help You Save for School, includes a chapter on how grandparents can help with independent school tuition.

PEJE Joint Purchasing Initiative

PEJE's Joint Purchasing Initiative continues to be a way for day schools to access significant savings on the products and services they use most.  Hundreds of schools are saving thousands of dollars.  Email Toni Wiley to make sure your school stretches its purchasing dollars.

Coming soon:  preferred pricing with office supplies giant Corporate Express.

In the Next Issue: Budgeting

In November, we'll discuss some of the philosophical underpinnings of a well-executed budgeting process. We'll also talk to Sorrel Paskin, noted financial management consultant, about how the budgeting process fits into a long-term strategic financial plan.