When planning for the future, the number of estate planning options you’ll want to consider is immense. As a result, you may feel understandably overwhelmed. However, one way to minimize stress is to take estate planning one step at a time. For example, if you want to set up a fund to help pay for a grandchild’s college tuition, you’ll want to focus on finding the best option for your needs. Keep reading to discover whether or not you can set up a trust and how a Washtenaw County trusts attorney can help you navigate this process.
What Kind of Trust Can Pay for College Tuition?
If you are interested in setting up a trust fund to hold money for a beneficiary’s college education, understanding what kind of trust you can establish is paramount. Generally, to hold money for a beneficiary, an irrevocable fund is the ideal option. This is because the funds in this trust are invisible to creditors and lawsuits, meaning they are guaranteed to go to the intended beneficiary.
An irrevocable trust allows you to place $15,000 for five years, or $75,000 at once, upon the creation of the trust. When it is time to use the funds for college, your trustee will distribute the funds accordingly.
What Are the Benefits of Using a Trust Over Alternative Options?
When you want to set aside funds for beneficiaries, you may also come across a 529 plan. This state-run program allows you to allocate funds to another’s secondary education. However, an irrevocable trust has more benefits. However, an irrevocable trust has more benefits.
For example, a fund is much more flexible. With a 529 plan, the money can only be used to pay for the beneficiary’s education. An irrevocable trust, however, can be used to pay for necessary medical expenses in the event that the intended beneficiary needs financial assistance.
Similarly, one of the main benefits of using an irrevocable fund is that the trustee can transfer the funds directly to the educational institution. This means that if they then transfer additional funds to the beneficiary, they will not be subjected to the gift tax. As of 2023, the threshold for a gift tax is $17,000. For example, if college tuition is $15,000 and they transfer an additional $4,000 to the beneficiary, they are considered separate transfers. This means they will not incur the gift tax.
If you are ready to set up an irrevocable trust to help your beneficiary receive an education, you’ll want to contact an experienced estate attorney as soon as possible. Unfortunately, trying to navigate this process on your own can lead to significant issues, as this fund cannot be modified once it is created. As such, you will need someone well-versed in the law to assist.
At Collis, Griffor & Hendra, we have the experience you need to help you navigate these complex legal matters. Contact our office today to learn more about how we can help you with any questions or concerns you have surrounding your trust fund.