When Mark and Michelle began thinking about their children’s educations, they quickly became overwhelmed. They had heard of UTMA accounts, 529 plans, and educational trusts. They knew their parents wanted to help also, but they didn’t fully understand the different approaches that were possible. They did their research and met with an estate planning attorney and were pleased to see that their questions were answered. The couple could make a plan that would work for them and their family.
Parents seeking to pay private school tuition or higher education costs should develop a game plan and explore the options. You could ask for financial aid. Funds are more readily available than most people think, and it never hurts to ask. You might request a discount, or at least ask to stretch payments out in monthly installments. You could choose to take out a loan. You could set up uniform transfer to minors (UTMA) custodial accounts or 529 college plans. You might establish educational trusts.
As you look at all the options and decide on one or more approaches, many families (even those of moderate means) use wills and trusts to provide for children’s educations.
There are two kinds of trusts parents or grandparents frequently establish for educational purposes: a living trust created during the lifetime of the person setting up the trust (which may be funded during their lifetime or at their death, depending on their choices); or a testamentary trust established through a will, which takes effect at the maker’s death.
An education trust allows you to give property to your children or grandchildren as a gift to be used for educational purposes. In setting aside funds for educational purposes, there are basic decisions that will need to be made. For example:
• Whose education(s) do you want to provide for, and is a trust the best option?
• If more than one beneficiary, do you want the funds to be in one single trust or in separate trusts for each person?
• How much money will you or your relatives put in the trust and when?
• What are the purposes of the trust?
• What types of educational expenses do you want the trust to pay for?
• Who should be the trustee to manage the trust(s), invest the money, and decide about distributions?
• How much discretion and how much guidance do you want to give the trustee in making decisions about use of the trust funds for the beneficiary(s)?
• What will happen if there are any funds left over that are not needed or used for the children’s education?
• Are you planning for one generation or for multiple generations?
• What would be the tax advantages of doing things one way or another?
• Is it best to set up a trust limited to education, or should the trustee have broader discretion to use funds for health, education, support, and maintenance, or even general welfare?
This is a conversation you can have with your attorney as you set up your plan and establish any trusts. Your decisions will be affected by the age of the children, the amount of money you plan to set aside for their educations, and your goals and objectives for them. Planning for a 3-year-old is very different from planning for a high school student. If a child has disabilities, a special needs trust may be in order.
Plans involving trusts are different from plans without trusts. Even people of moderate means may benefit from establishing a trust, but not everyone does. Each plan should be custom-tailored to the family doing the planning so it is appropriate for their situation and meets their goals and objectives.