The importance of education cannot be underestimated. From the foundations built in grade school to higher education, the rewards of focusing on education are many. So, too, are the costs. It is no secret that education, specifically higher education, can be costly and result in an individual incurring a lot of debt. Many people want to see their children and grandchildren avoid the pitfalls such hefty debt can cause, and comprehensive estate planning can be an effective way to help make sure the costs of college do not break the bank.
Direct Tuition Payments
If you want to contribute to decreasing the financial burden college can take, then you may want to consider making direct tuition payments to the school the individual is attending. If you have the financial security to be able to contribute in this way, there are few consequences – unless something were to happen to you.
The downside of direct tuition payments is that you cannot make them if you pass away before tuition bills are a concern. Taking this approach can also mean that if anything happens to you while the individual is attending school and you do not have a backup plan, the individual could find themselves without the ability to meet the financial requirements of attendance.
There are other direct payment options that you can explore, like college savings plans. With such plans, you typically make a monthly contribution from the time the plan is created until the terms of the plan dictate no additional payments are necessary. It is important for you to work with an experienced estate planning attorney when exploring any of the options you have for covering the tuition of another individual to ensure that it will not have any negative effects on your estate at present or in the future.
Direct contributions are not always a possibility for a number of different reasons. Establishing a trust to help approach the increasingly high cost of higher education is an option that can work for a lot of individuals. However, it is important to be aware of the benefits as well as the limitations that trusts have when it comes to helping pay for college.
Depending on other financial contributions to the cost of tuition and other necessities, the beneficiary may still need to qualify for financial aid. Typically, individuals looking at college do not have assets that would prevent them from receiving financial aid. However, a trust is considered the asset of the beneficiary when it comes to determining financial aid, so it is important to remember the guidelines for financial aid if such aid is required in addition to the trust.
Additionally, contributions to a trust could be considered a taxable gift depending on whether you have met the exemption requirements. There is an individual, married, and lifetime exemption that can help avoid these taxes, but it is important to create a trust early enough to take full advantage of these possible options.
There are several types of trusts that you may want to consider, including Crummey trusts and minor’s trusts. It is important for you to understand the nuances of each kind of trust to determine whether creating one – and which one to create – is right for you and your family’s needs.