Achieving educational goals can be life-changing—as is the gift of paid tuition! A trust can be a great way to gift education to family members. Unlike a will, a trust, overseen by a trustee, allows for periodic distributions to the named beneficiaries. Legal experts share tips, including considering how a 529 plan and trust could work together.
529 Plan + A Trust?
Family members, including parents, grandparents and others, can use a state-sponsored 529 plan to make cash contributions for the educational needs of children. Legal experts suggest that while 529 plans are a great way to save for and fund tuition and other qualified educational expenses, some families might find it even more beneficial to establish a trust that holds the 529. As Adler, Pollock& Sheehan point out:
Establishing a family education trust to hold one or more 529 plans provides several significant benefits:
- It permits you to maintain tax-advantaged education funds indefinitely (depending on applicable state law) to benefit future generations and it keeps the funds out of the hands of those who would use them for other purposes.
- It allows you to establish guidelines on which family members are eligible for educational assistance and direct how the funds will be used or distributed in the event they’re no longer needed for educational purposes. You can also appoint trustees and successor trustees to oversee the trust.
- It can accept noncash contributions and hold a variety of investments and assets outside 529 plans. For example, the trustees might invest in hedge funds, private equity funds, life insurance or other alternative investments if they conclude that the increased returns would outweigh the tax cost.
Kee in mind that when you work with a lawyer to establish a trust, you will designate a trustee to administer it. Trustee bonds are frequently advised as a good way to safeguard the interests of beneficiaries. Essentially, a trustee bond is a type of fiduciary bond that guarantees that the trust will be administered in accordance with the law. It is quick and easy to obtain a trustee bond from a leading national provider: Colonial Surety Company. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond instantly—from anywhere. Trustee Bond Here.
Good To Know
Legal experts note that trusts can also be useful when speed or privacy are especially important. That’s because unlike wills, trusts do not go through the public probate process. Some families create trusts for asset protection. Additionally, setting up a trust can be a helpful way to attend to the needs of a loved one with special needs. Trusts can even be used to provide family or friends with resources to care for you if you become incapacitated. You can learn more about different types of trusts—and their uses here.
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