For parents looking to send their child to private school, it can be a big and potentially long financial commitment. But are there ways to manage the costs proactively? Mindi Banach, Tax and Estate Planner, TD Wealth, joins Anthony Okolie to discuss some ideas to help you finance your child’s private school education.
For parents looking to send their child to private school, it's a big financial commitment, with the cost of tuition ranging from several thousands of dollars to tens of thousands of per year. And it's not just tuition. There are other expenses to consider as well. But are there ways to manage the cost proactively?
Mindi Banach, tax and estate planner with TD Wealth, joins me now with ideas to help you fund your child's private school education. Mindi, thanks for joining us again.
Thank you for having me.
So let's just jump right in. When should parents start planning for costs of private school once they've made that decision? Because this could potentially be more than a 10-year commitment.
So, ideally, parents should start planning as soon as possible, and if possible, before a child reaches the school age. Now, the cost of tuition is going to vary at a private school, based on the province or territory that you're in, the city, and obviously the specific private school that you end up choosing.
But I think we can all recognize that the cost of sending a child to a private school is going to be higher than the cost of sending a child through the public school system. And so you want to plan and plan early to ensure that you can afford the immediate, short-term responsibilities that you're going to face, as well as the long-term savings. You want to ensure that you can fund your child's private school education from start to finish.
Should parents consider using a trust to help pay for a private school education? Is that an option?
So, with respect to the answer to this question, it's really going to be based on an individual client's preferences and circumstances. Now, for some parents, the answer is going to be yes, you should be considering it, based on the tax advantages. For other parents, it's going to be no, based on the cost.
Now, for the parents where there is a tax advantage, one of the strategies that may be available is setting up a discretionary family trust, possibly for income-splitting opportunities whereby you are reducing the tax burden of the family by allocating income to a child who's in a lower tax bracket. But it's really important to recognize that it's not as simple as just setting up a discretionary family trust. Particularly for income-splitting purposes, there's a lot more complexity involved that entails possibly introducing a prescribed-rate loan or some other mechanism, so it's going to be critical and crucial to consult with a professional.
OK, now, does it make sense for parents to use money that's saved in their TFSAs to help finance their child's private education?
So again, another answer where it's going to be based on an individual client's preferences--
I knew that was coming.
--and circumstances. Again, not every client is going to be the same. The answer is going to be different. There's a lot of tax benefits to a TFSA account, as well as flexibility. There's tax-free growth. There's tax-free withdrawals. But the reality is, if a parent is going to take out money from their TFSA account to pay for their child's private school education, that's going to impact the long-term growth of that TFSA account. So again, striking that balance between short-term financial needs and long-term savings objectives is going to be key.
And let's say inheritance is likely coming from your parents. Is it worth it to ask for that money now to help with private school costs?
So this is going to be a highly personal decision that involves a lot of complexities that you may not have realized. The reality is, based on where the source of that early inheritance is coming from, you may want to realize and recognize that there could be some tax and estate planning considerations that you need to consider. Another factor you need to consider are the family dynamics in your family, the financial needs, whether or not your parents can support paying for this type of educational cost. So again, before making this decision, which is, again, a very personal decision, you want to be making certain that you're carefully considering all the factors.
So let's talk about other strategies that parents might want to consider.
So there's probably some traditional strategies to consider, as well as what I call outside-the-box strategies you may also want to consider, and let's talk about some of them within both. So some of the more traditional strategies-- one of the best resources that I think parents should go to is contact the private school that you're looking into and see what type of financial assistance programs that they have.
There could be a payment plan that is available. It could be that there's a discount if you pay a lump sum in the beginning. It could be a discount if you have multiple children at the school, if you refer students to the school. Again, some of those financial assistance may be merit-based. Some of them could need-based. So you want to, again, go to the school. Ask them what their financial resources are.
Other places that you want to research and ask questions about are-- if you or anyone else in your family have gone to another university or private school, contact the alumni association. Maybe they have some financial assistance that they provide not only to the alumni, but to the family of alumni. You want to research online scholarships databases to see what scholarships you may be eligible for. Contact your employer. It could be that they provide some sort of benefits, not only to their employees, but also to the family of employees.
Some more creative strategies that you may want to think about is bartering and exchanging services. As a parent, if you have any profession expertise, and you can provide tutoring services or coaching services, maybe that can reduce your obligation to that school. If you are thinking about crowdsourcing or organizing a community fundraising event within your school, you want to balance both the traditional strategies available along with the more what I call creative, outside-the-box thinking to ensure that you are finding the right financial strategy for you to help pay for your child's private school education.
Yes, because I think some people might be just focused on the traditional, as opposed to thinking outside the box.
Who should parents consider speaking with as they figure out their financial strategy for the child's private school education?
So there are a number of different types of professionals that you want to speak with. I think the obvious choices are an estate planner, an accountant, a financial advisor. But I briefly mentioned before, you may want to really consult with a financial aid consultant at the particular school that you're looking at. Now, it could be that the title at your school-- that person is called someone else. But you want to, again, find out who at your school is there to help parents navigate this whole area, in terms of understanding what the application process is, what the eligibility requirements and, importantly, what those deadlines are.
Again, going to the school is a really great starting place. If you're financing your child's private school education with a loan, you want to talk to a banking and loan officer about what those interest rates are and things of that nature. Again, talking to a number of different professionals can help you make a more informed decision to find the right financial strategy that is based for your unique circumstances.
Great information, as always, Mindi. Thank you very much for joining us.