Educational Trusts

Posted on: November 16th, 2018
As the name implies, an educational trust is a trust created to pay for loved ones’ education. Often parents, grandparents - or even aunts or uncles and friends - desire to create or continue an education legacy. In addition to legacy, other educational trust benefits are tax minimization, asset organization, asset protection, peace of mind, privacy, flexibility, and family unity.

Education trusts can own a multitude of assets, including, but not limited to, life insurance and 529 plans:

  • Life insurance is sometimes used to fund educational trusts, especially dynasty trusts which can continue for generations. If assets are to be used for tuition only and will be paid directly to the educational institution, there’s no need to allocate generation-skipping tax exemption; however, if funds can also be used for room, board, books, and travel, it typically makes sense to allocate both estate and generation-skipping tax exemptions when funding the trust. Life insurance is an effective way to leverage those valuable tax exemptions.

  • Educational trusts can own 529 plans. Growth and distributions are income tax-free. Some state 529 plans offer asset protection, but if not, no need to worry because the educational trust offers asset protection in all states. This means assets can’t be seized in a lawsuit or other creditor attack.

The educational trust is essential should you become incapacitated and when you die. Those you name as successor trustees will follow the directions you provide in the trust document. They will manage the assets and make distributions on behalf of your beneficiaries as you would have done yourself:

  • For example, trust assets are available to pay for your beneficiaries’ education, but not available for them to frivolously waste or to have seized in a lawsuit.

  • And, court supervision is not necessary or required, so funds are not wasted and your personal family and financial matters are kept private.

If one trust is used, the educational trust provides flexibility to move assets between beneficiaries as needed. In the alternative, if multiple educational trusts are established, each beneficiary uses her special gift for her education.

If you have an education legacy you’d like to create or continue as well as children you love, we’d be happy to discuss whether an education trust makes sense for you and your family.

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