Trust planning for educational expenses

On Behalf of | Feb 27, 2020 | Trusts

Some Nevada residents may be interested in creating a trust as part of their estate planning process, especially because of the greater level of flexibility, privacy and control that it offers. Each trust has beneficiaries but also a trustee who makes decisions about how the trust is managed and its funds distributed. Some trusts may dictate the trustee’s actions strictly while others may provide for broader trustee discretion.

One of the most common types of trust sets a minimum age for a beneficiary to receive major distributions. This is one reason why trusts are so popular as a mechanism to pass an inheritance to minor children and provide greater protection for the funds. They can also set an older age of distribution, although most trusts allow the trustee to pay for educational expenses prior to that date. In some cases, the trustee may be able to use an education savings account like a 529 plan for these expenses, while other trusts may be more restrictive.

Some trustees may wish to do this in order to minimize the tax effects of money received from a trust, especially one that has stretched out over time. In most cases, trusts will want to pass earnings from investments on to beneficiaries, who, while taxed on their income, lose less to taxes than trusts themselves. A 529 plan may be one way that some trustees can minimize the tax effects on beneficiaries receiving funds for their educational expenses, although choices may vary depending on how the trust was drafted.

Many people want to create a trust in order to support their loved ones over generations, including providing help with educational expenses. An estate planning attorney may help people to construct a trust that reflects their plans for the future, with clauses to allow for trustee discretion or greater tax protection.