A college education is one important way for young people to invest in their future, and if you or a parent or grandparent you may want to set aside money to pay for your loved one’s college costs. However, not every plan provides the same protection and support. How can you fund your loved one’s education in your estate plan?
Funds left to a young person in a will may not go toward their education.
While a will may seem like the most streamlined option for estate planning, it does not necessarily allow you to specify how those funds will be used. Your loved one will receive their inheritance from a will at one time when they reach the age of majority, and they may not choose to use that inheritance to pursue an education.
Carefully crafted trusts can offer support for college costs.
A trust allows you significant flexibility in estate planning and greater control over how and when your loved one can use those funds. As a part of the trust, you can outline guidelines for the use of the assets placed in trust. This includes setting aside a portion of those assets to pay for your loved one’s college costs.
Section 529 plans offer additional options for building a college fund.
An increasingly popular option for those who want to set aside funds for their loved one’s education is a Section 529 plan, also called a Qualified Tuition Plan. This type of planning technique allows you to set aside money specifically to fund college tuition. You will not be taxed until the funds are distributed.
It is, however, important to remember that the funds from Section 529 plans can only be used for tuition. These plans cannot fund room and board, books and other costs associated with life on campus.
To determine which estate planning documents will best support your loved one’s future education, you may want to seek legal counsel. With the right guidance and documents, you can protect your assets and your loved one’s future.