The Advantages of Educational Trusts

Creating a trust when your child or grandchild is small is a good way to build up money for the child’s future educational expenses. But there are a number of other benefits involved with educational trusts, as well. Here are a few.

  • You don’t have to pay a gift tax. If you have a properly set up Crummy Trust, in which each beneficiary has the right to withdraw a certain portion of the gift within thirty days, individuals can give away up to $14,000 per year without paying gift taxes on it. Because the trust can be funded with the gift exclusion amount, you won’t incur any gift taxes on it. The interest and dividends from it are also exempt.
  • Educational trusts can be protected from liability. By including Spendthrift Provisions in the language of the trust agreements, the money can’t be taken by creditors as payment for noneducational expenses.
  •  There are further tax benefits. Contributions to an educational trust are no longer included as part of the grantor’s estate and, therefore, are not subject to estate taxes. In particular, educational trust help those individuals with sizable estates to pass their assets to future generations without an estate tax being involved.

While the main benefit of an educational trust, of course, is raising the money for a child’s educational expenses, this form of trust is often included in a comprehensive estate plan. It is important that your trust be set up in accordance to Spendthrift and Crummy guidelines so that you and your loved ones will receive the maximum benefit. For more information on this and other types of trusts, contact us.