Stand-Alone Education Trust Basics

A stand-alone education trust is another popular estate planning tool. With the cost of college and graduate school rising and with college degrees becoming more and more necessary for employment, a stand-alone education trust is something that you may want to think about as you plan for the future of you and your family.

Stand-Alone Education Trust

A stand-alone education trust is an estate planning tool that allows a “grantor” (the person who is providing the money for the trust that will one day go to someone else) to give money to a “beneficiary” (the person who gets the benefit of the trust) to be used for education-related expenses. The trust works in conjunction with a 529 plan to pass money down to beneficiaries while minimizing tax liability. It also provides money for college specifically and can help to encourage younger family members to pursue higher education.

529 Plan

A stand-alone education trust is a trust that works with a 529 plan in order to get the benefits of said plan. A 529 plan, named after the section of the federal tax code that creates this plan, offers a way for parents, grandparents, and other relatives to put money into a tax advantaged place to be used for college tuition and related expenses for the beneficiary. At no time does the beneficiary get control of the trust. The money earned on the investment in the trust is not taxed federally. Florida (and a few other states) even guarantees the returns on the trust. The trust can be set up in the name of one person or several siblings to allow them to share. The money can be used not only for tuition, but also other qualified expenses such as living expenses. If one person does not use the money in the 529 plan then it can be transferred to a different beneficiary. Though, in order to take out money for non-education related expenses you will pay a penalty and be responsible for any taxes.

Benefits of a Stand-Alone Education Trust

First, a stand-alone education trust is only appropriate for people who are planning to give money to someone who is likely to go to college in the future. In terms of tax benefits, with the 529 plan the money earned by the plan itself is not taxed federally. Another tax planning tool involves giving beneficiaries money up to the gift exemption amount in a 529 plan annually (which is currently $14,000).

The Villages Estate Planning Attorneys

If you are thinking about a stand-alone education trust or any other kind of estate planning tool, you should talk to a knowledgeable estate planning attorney to help you decide whether a stand-alone education trust is right for you. Our experienced estate planning attorneys at Millhorn Elder Law Planning Group located in The Villages can help you decide what estate planning tools will best meet your needs.