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Tips for creating an educational trust

On Behalf of | Oct 5, 2016 | Estate Planning |

Some Ohio seniors may want to set up an educational trust to provide for their grandchildren. A trust does have some advantages over a 529 savings plan. For example, a 529 savings plan can affect a person’s financial aid eligibility, and it limits the contribution of a couple to $28,000 per year per recipient if federal gift tax is to be avoided. An educational trust can be set up in such a way that it supports more than one generation of family members.

However, these trusts can be complex. Tax issues, financial issues and family dynamics must all be addressed. For example, if a person sets up a pot trust rather than individual trusts and one beneficiary has more expensive educational needs than another, this could create resentment. On the other hand, equal distributions may seem unfair as well if some people have greater needs than others.

Another consideration is what constitutes “education.” Some experts say that people should endeavor to define it broadly. For example, it should encompass a person’s desire to attend tennis camp or study abroad. A regular trust that is set up with provisions around education might be more flexible than an educational trust. A person can also design the trust so that any leftover money in it is distributed to beneficiaries once the youngest grandchild reaches a certain age.

One advantage of trusts as estate planning tools over wills is that they can specify how assets are used. They can also set conditions on when a beneficiary receives distributions. For example, the conditions can be tied to milestones such as reaching a certain age. While a trust has the advantage of being able to quickly distribute assets to beneficiaries without having to go through probate, a person might want to consider having a will as well.