How to Fund for Education in Your Estate Planning Strategy

When it comes to estate planning, many people want to guarantee their loved ones, particularly their children, are taken care of and have the financial resources to thrive. A great way to help provide for your younger loved ones is to incorporate education funding into your estate plan.

There are many reasons why education funding is a worthwhile estate planning strategy. For example, through effective planning, you can strategically lower your taxable estate while also facilitating a transfer of funds that will ensure your loved ones have the financial resources to pursue their educational endeavors. Another benefit of including education funding in your estate plan is the fact that specific education trusts can be established that require funds to be used in a structured way thereby providing you with greater control over how the trust assets are utilized. For example, you could stipulate that a trust beneficiary maintains a specific GPA or chooses a particular major in order for the beneficiary to receive those funds. If you have questions that require help from a trust fund attorney, give us a call today.

Incorporating educational savings into your estate plan can be accomplished through various strategies, and each offers different advantages that can aid in amplifying benefits and contributing to your loved one’s financial stability and educational opportunity. If you have questions about estate planning in Wilmington, NC, Myrtle Beach, or the surrounding areas, contact Bespoke Estate Law. We would be happy to speak with you.

Education Trust Fund

An estate planning strategy geared toward education funding entails establishing a trust that is specifically designed and structured for educational expenses. For context, an education trust fund is a type of trust where the grantor establishes a fund for the sole purpose of providing educational support for a designated beneficiary or beneficiaries. The grantor transfers funds and other assets into the trust. A trustee would then be tasked with controlling and managing the trust assets. The grantor can direct to the trustee how and when the funds in the trust are utilized.

The designated beneficiary can be an individual, group of siblings, a group of scholarship recipients, or even an educational institution. This is why an education trust fund is also known as a college trust fund.

529 Contributions

Along with an education trust fund, an effective strategy for funding education expenses is opening a 529 account. There are many benefits associated with 529 accounts. For example, you have the option to contribute large sums to the 529 account while decreasing your taxable estate. With a North Carolina 529 plan, a single person can contribute up to $17,000 a year to a child's NC 529 Account without triggering the federal gift tax. A married couple can contribute $34,000 to a single account.

Contributions grow tax-free and withdrawals for qualified education expenses are tax-exempt at the federal level and even in some states. In addition, 529 contributions qualify for the annual gift tax exclusion of up to $18,000 for individuals or $36,000 if married filing jointly.

Another notable benefit for 529 accounts is that the funds can be accessed to cover certain primary education expenses rather than only being accessible for post-secondary educational endeavors. Basically, this means you make tax-free distributions from a 529 account for expenses incurred during kindergarten through 12th grade, up to $10,000 per year.

Education Savings Accounts

Another education funding strategy to consider is setting up a Coverdell Education Savings Account. This type of account allows for tax-free investment growth and tax-free withdrawals at the federal level for qualified education expenses but is also rife with restrictions and limitations. For example, Coverdell accounts have relatively low contribution limits, especially when compared to previously-discussed 529 plans. Specifically, Coverdell accounts have annual contribution limits of $2,000 per child.

In addition, there are income restrictions for Coverdell accounts. The current income limits are $110,000 for individuals and $220,000 if married filing jointly. In addition, the designated beneficiary for the account must use the funds by age 30 or transfer the funds to another family member for educational purposes in order to avoid taxes and associated penalties.

Custodial Accounts

Along with Coverdell accounts, you could consider establishing a savings account under the Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). Both UGMA and UTMA accounts can be used to set aside funds for a child's educational expenses while also providing certain tax benefits. However, these types of accounts are riskier since the funds in the account typically transfer to the beneficiary when they reach the age of majority. This means you aren’t afforded the same level of control and oversight of the funds, especially when compared to an education trust fund.

Gifts to Beneficiaries

Another education funding strategy to consider is making direct gifts to children or grandchildren to help cover their educational purposes. Making a direct gift can allow you to take advantage of the annual gift tax exclusion thereby mitigating the risk of getting hit with a large tax bill. Your gift can then be placed into an educational savings account, such as a 529 account.

Contact an Experienced Estate Planning Attorney in Myrtle Beach Today

Setting up an education trust fund that is integrated into your estate plan and/or properly conveying a gift to a loved one requires careful planning and a deep understanding of relevant rules and regulations. This is where Bespoke Estate Law can help. We are an established law firm specializing in comprehensive estate planning, wills, business law, contract law, and probate & trust administration services. We proudly serve clients residing in Myrtle Beach and the surrounding localities.