VanNess & VanNess, P.A.

Creating education trusts to benefit grandchildren

People in Florida who are creating an estate plan might be concerned about how their grandchildren will pay for their education and may wonder if an education trust is the answer. It is possible to use a 529 savings plan for college funds, and compared to that, an education trust has advantages and disadvantages. For example, a couple cannot contribute more than $28,000 annually to a 529 plan without incurring gift taxes. A 529 might also affect a student's eligibility for financial aid. A trust also gives a person more control over how and when the money is distributed. In effect, it can be used to pass on values as well as assets.

One choice that will need to be made is whether a grandparent will set up individual trusts or a pot trust. One drawback with pot trusts may arise if one grandchild needs more assets than the other. For example, one might attend an expensive private university and use up more resources than another who goes to a state university. However, distributing the same amount to all beneficiaries may cause problems as well because not all will have the same needs.

Experts recommend making a trust broad, including in terms of education. One beneficiary might prefer a sports camp or international study for instance, so a general trust designed to support education may be more flexible than an educational trust.

Estate planning can be a complex process that is about more than just assigning assets to beneficiaries. It also involves taking family dynamics and the needs of beneficiaries into account, considering one's own wishes and end-of-life care needs, and choosing the right people to manage the estate during and after a person's death. For example, an individual may need to choose someone to handle financial and medical decisions if they are incapacitated, an executor for a will and trustees to oversee trusts.

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