Education Trusts and Investment Plans
With the rising cost of higher education, more young adults are turning their parents and grandparents for help with paying for room, board, and tuition bills. Whether you have a substantial lump sum or on-going payments, you should speak to an estate planner to help you select the right plan that will ensure that your money goes into your loved-one’s education and not the IRS coffers.
In addition, education planning is one way to ensure that the inheritance you leave behind is not wasted on sports cars and trips to Las Vegas. Young adults are not known for financial savvy, and $100,000 can quickly disappear instead of being put to practical use.
Living trusts are a common way to set money aside for education. However, these are typically reserved for large lump sums – generally over $100,000. You can make substantial restrictions on the money in the trust — such as dictating that the money can only be used to pay tuition bills. You will have to name a trustee who will make all the decisions about the money once you are gone. If you’d prefer to maintain full control over your money until you pass away, you can set up a testamentary trust that becomes active upon your death.
For monthly or annual payments towards education, your attorney can help you set up a 529 plan. These are investment plans created with the sole purpose of funding higher education. There are significant tax benefits with a 529 plan. Your estate planner can help you create a comprehensive last will and testament incorporating a trust or a 529 plan to ensure education is part of your legacy.