A closer look at trusts for education funding

On Behalf of | Aug 29, 2017 | Blog

When Nevada families want to invest in the education of their next generation, trusts could provide flexibility and tax savings. Trusts allow people to set up their own investment plan instead of being limited to the investments allowed through a 529 education savings plan. The terms of a trust could also encompass more than paying for a young person’s education. A trustee could have the ability to distribute funds for other expenses, such as medical bills or paying for a home.

Unlike a 529 plan, a trust could accept other types of assets, such as a life insurance policy. The assets in a trust could also endure beyond a beneficiary’s time in school. Protection of wealth could continue as the trust keeps the funds beyond the reach of creditors. Additionally, the rules of a trust could prevent a beneficiary from squandering money or losing it in a divorce.

For families that have concerns about exceeding the lifetime estate tax exclusion per individual, a trust could support a strategy of limiting taxes and increasing wealth transfer. In some cases, a family member could directly pay for someone’s education by writing a check to the school. These direct payments would not count against annual or lifetime exclusion limits, and assets could be placed in a trust up to these limits.

The decision to take this approach depends on a careful analysis of income and estate taxes and the costs of operating a compliant trust. An attorney who has experience with this type of trust planning could help a family set up a vehicle that is tailored to their needs and desires.