When preparing for the future, ensuring your loved ones are taken care of is likely at the top of your priority list. However, with so many estate planning options available, you may not know which is best for your family. For example, if you want to pay for the college education of a grandchild, there are a few different options you may want to consider. Keep reading to discover how a Putnam County trusts attorney can help you create the best plan for your needs.
What Kind of Trust Should I Set Up for a College Education?
If you’re interested in setting up a trust to hold funds for your beneficiary’s college education, it’s imperative to understand what your options are. Generally, the best kind of trust fund to establish for this purpose is an irrevocable trust. This cannot be modified or altered once it is created. As such, the funds and assets inside this trust are invisible to creditors and lawsuits, which guarantees they will go to the intended beneficiaries.
With an irrevocable trust, you can place $15,000 for five years or $75,000 in the trust upon its creation. These funds can be used to make qualified transfers for the college tuition of a beneficiary.
What Are the Benefits of an Irrevocable Trust Over Alternative Options?
When reviewing the different options to designate money for an education, an alternative choice many consider is a 529 plan. This is a state-run college savings program that does have some benefits. However, when comparing it to an irrevocable trust, there are more advantages to a trust.
For example, there is significantly more flexibility with a trust fund. A 529 plan can only be used to pay for a college education, whereas the funds in a trust can be transferred to cover medical bills and any other pressing expenses that may arise. Similarly, the owner of a 529 plan can change it at any time, meaning the beneficiary may not receive the funds they thought they would benefit from.
Additionally, an irrevocable trust is ideal as it can help you avoid the annual gift tax that can occur when funds are transferred. This is because the trustee can send money directly to the college or while still transferring money to the beneficiary if necessary. These are considered separate transfers and will not incur the gift tax. For example, if college tuition is $14,000 and the beneficiary receives an additional $4,000, they are not combined to incur the tax.
When you have questions about estate planning, Andres D. Gil can help. Our dedicated legal team has the necessary experience to help you navigate the complexities of estate planning with as much ease as possible. Contact us today to learn more about how we can help you navigate this complex situation.