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To begin with, as you must be aware that there are many ways parents and grand parents set money aside to fund education of their children and grand children. This include Section 2503(b) trusts, Section 2503 trusts, 529 Plans, custodial accounts, etc.
I would not recommend the two trusts mentioned above because of many restrictions that it places on end use of funds. Also, it makes mandatory to make at least one annual income distribution in favor of the kid. This defeats your purpose and planning. I would also not recommend custodial accounts, i.e. UTMA and UGMA accounts. This is because, the parent or the grand parent does not have the ownership and the kid has the ownership of the account and the end use is very rigid, very limited in options.
Now coming to your main question.
I believe, the only accounts that you can set up is 529 Plan and Education Savings Accounts (ESAs). This would suit your planning as well. I quote "Similar to an IRA, dollars in an ESA can be put to work in a wide variety of investment options including stocks, bonds and mutual funds. Funds can be withdrawn on a tax-free basis for education-related costs such as computers, tutoring and private school tuition. The maximum contribution is $2,000 per year per beneficiary. Parents must meet income requirements to qualify for contributions to an ESA."
529 Plans All dollars accumulated in a plan can qualify for tax-free withdrawals, giving you more freedom to focus on other financial goals. You and others (such as grandparents) can invest money in a 529 plan for the benefit of specific individuals. Dollars saved are typically invested in mutual funds. Earnings accumulated in the plan are not subject to federal taxes and, in many cases, state taxes (if you’re a resident of the sponsoring state) – as long as funds are used for qualified higher-education expenses like tuition, housing and books/equipment. States, state agencies and educational institutions sponsor 529 plans. Tax benefits vary by state and plan.
529 Plans would suit you the most. This is because, you would be free to withdraw money for any other use apart from education. The only thing would be the money thus withdrawn would be subject to federal taxes but in case of emergency, if the grand parents want it themselves, they can certainly withdraw it.
Original account owner maintains ownership under the 529 plan (not the kid).
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My parents are worried about "setting aside" $400,000 for their grandchild. It WOULD be used for education but they would want to have access to it for their own benefit should a long hospital stay or other extreme expenditure came up.
At present my father and mother have made the decision to have my older brother control their wills, trusts, living wills and power of attorney. There is bad blood between my brother and my sisters. We CANNOT TRUST that our brother (thru spite) will help pay for her education once my parents are gone EVEN IF it is their wish.
I my parents set up a money market account or other such account with no penalties for withdrawal and put it in my sister's name - will my brother be able to touch it after my parents are gone?
Sorry this is so complicated and, by the way, my parents are not interersted in 529 plans. Should have said that before.
So, we can set up a money market account that can be accessed by my mother, my father and my sister FOR ANY REASON......not simply for the grandchild?
This account will in no way be in the control of the executor of their estate.....not part of any monies he can take as part of the estate.
Would the account be in the name of both grandparent sand my sister?