When your grandchild enrolls in a college, you may want to show your support in their journey by financially contributing to their education. However, there may be tax implications when transferring a significant lump sum of money. What’s more, there may be financial aid implications for your grandchild. Continue reading to learn how your estate plan can help fund your grandchild’s education and how one of the experienced Butler County trust attorneys at Heritage Elder Law & Estate Planning, LLC can work on your behalf.
How can my estate plan work to fund my grandchild’s education?
Likely the most common estate planning document used to fund a grandchild’s education is an irrevocable trust. This is because an irrevocable trust may be funded by using annual exclusion gifts of up to $15,000 per year. What’s next, you may use these funds to make qualified transfers to your grandchild’s education expenses. Of note, these qualified transfers are made directly to the educational institution and not your grandchild. This is so they are not counted toward your annual exclusion gifts limit.
You do not have to worry about over-funding an irrevocable trust. There are several benefits to making your grandchild the beneficiary of your irrevocable trust beyond ones that are education-related. Examples include, but are not limited to, the following:
- Your grandchild may use the leftover funds to support other aspects of their life outside of their education, such as their medical expenses and life insurance expenses.
- Your grandchild may keep the leftover funds in the trust to keep them out of reach from creditors.
- Your grandchild may keep the leftover funds in the trust to keep them out of reach from reckless personal purchases.
What other plans should I consider?
Aside from establishing an irrevocable trust, many different financial accounts may allow you to direct funds toward your grandchild’s education. Examples include, but are not limited to, the following:
- Start a Roth IRA and name your grandchild as a primary beneficiary.
- Start a state-sponsored 529 plan to get tax benefits when paying for qualified education expenses for your primary beneficiary.
- Start a Section 2503(c) minor’s trust to hold a financial gift for your primary beneficiary until they are 21 years of age.
Overall, these options may be better than simply making direct tuition payments on your grandchild’s behalf. This is because, in the unfortunate event that you pass on, these recurring payments may come to a screeching halt. Thus, a long-term plan may be the safest and most beneficial alternative for the years to come.
You must take the initiative and reach out to one of the skilled Butler County estate planning attorneys at your earliest possible convenience. Our team at Heritage Elder Law & Estate Planning, LLC will be happy to serve you.