Estate May Be Key to Tuition
Marsha Mack Frances
location and value of your New York apartment may turn out to
be the key to your children’s or grandchildren’s private school,
college or graduate school tuition. Moving to a new location or
to a smaller apartment may make it possible to cope with the high
price of a quality education.
Tuition at private schools approaches $20,000 per year. Ivy League
college tuition, room and board exceed $30,000 a year, and a medical
school education at a top school may exceed $40,000 a year. While
many families turn to loans or grants, not all children are eligible,
and many families would prefer to have their children begin their
careers debt-free. From a tax point of view, the law allows each
family to realize real estate gains up to $500,000. Also, money
invested in a child’s education goes untaxed, whereas inherited
wealth remains heavily taxed.
Many grandparents may be at a stage of life where contemplating
a move to warmer climates with less expensive real estate enables
them to provide a living legacy through funding their grandchildren’s
education. The large apartment they wisely purchased for little
money years ago may now be worth a king’s ransom.
When several children have gone off to college or graduate school,
a nine room apartment that has appreciated in value may be much
larger than needed. The capital gained from its sale may get its
highest rate of return through investments in education, tutoring,
educational experiences for young people or diversification to
other forms of investment.
For example, Stacy and David have a sophomore son at the University
of Pennsylvania, twin 17-year-old girls who have gotten early
acceptance to the University of Michigan, and another daughter
at Georgetown. Stacy and David are both lawyers and their combined
income is $310,000, and next year they face tuition expenses in
excess of $100,000. They used to live in a nine room apartment
on Park Avenue that Stacy inherited from her grandmother 20 years
ago and that was recently valued at $4.2 million. Their maintenance
and mortgage totaled $90,000. By moving to a six room apartment,
they were able to gross $2.5 million, of which $500,000 is not
In the past year, many brokers have been asked to appraise apartments
for families that are trying to realize the recent gains that
have accrued in this extraordinary market. But there is no guarantee
that the current high prices paid for luxury apartments will last.
Recent prices might be at their peak, especially given the stock
market’s bear performance over the past year. Past declines in
the stock market have often been followed by declines in real
estate values in New York over periods of several months or years.
Most financial advisors recommend diversification as a protection
against market instability. For an investor whose apartment represented
one quarter of his net worth five years ago, he or she may now
discover that it represents 80 percent. The investor might want
to move to a smaller apartment, thereby unlocking value from a
real estate market that may be at its peak, in order to invest
in other things, such as education. #
author is Senior Vice President at Douglas Elliman. For more information,
Education Update, Inc., P.O. Box 20005, New York, NY 10001. Tel:
(212) 481-5519. Fax: (212) 481-3919. Email: firstname.lastname@example.org.
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the publisher. © 2001.