For many, a college education can be extremely expensive. However, obtaining a degree in today’s society is coveted, as it can lead to high-paying job opportunities. As such, you may wonder if you can use a Trust Fund to pay for your college education. Keep reading to learn what kind of Trust can fund a college education, the benefits, and how a Medina County, Ohio Trust preparation lawyer can assist you through this often complex process.
What Kind of Trust Fund Can Pay for My College Education?
Many states, including Ohio, offer what’s known as a 529 plan. This is an investment account that works similarly to a Roth IRA account. However, there are limitations to these plans that leave many opting to use a Trust Fund to cover their college expenses.
If you plan on using a Trust to pay for college, it’s essential to understand what kind you can use to cover the payments. As the Beneficiary of an Irrevocable Trust, you can likely use the assets to pay for your education. An Irrevocable Trust cannot be modified or altered once it has been created. Upon creation, however, the grantor may choose to set aside up to $75,000, which can be used to make qualified transfers to cover your college expenses. The Trustee will handle the transfer of funds to the college when necessary to make tuition payments.
What Are the Benefits of a Trust Fund for Higher Education?
As previously stated, many often use a 529 plan to pay for a college education. However, this has limitations that leave many searching for an alternative. Generally, a 529 can only be used for education purposes, which leaves many feeling stuck with an inflexible plan.
Using a Trust to pay for college can be used should other expenses rise. For example, if you incur unexpected medical bills while away at school, funds from the Trust can be used to help pay for them. Similarly, because the funds are in an Irrevocable Trust, they are shielded from creditors and potential lawsuits against the grantor, meaning the Beneficiaries are guaranteed to get the funds.
Another benefit of using a Trust over a 529 plan is that the Trustee can transfer funds from the Trust to the educational institution and, if necessary, transfer additional funds to the Beneficiary without incurring a gift tax. As of 2023, the threshold is set at $17,000. This means the Trustee can transfer $17,000 for tuition directly to the college or university and give the Beneficiary another $3,000. Because they are considered separate transfers, there is no gift tax.
As you can see, this can be a confusing and complex process to navigate on your own. It is essential to enlist the assistance of an experienced estate planning attorney to help you through this process. Contact Krause Law today to learn how we can assist you and answer any questions you have regarding your Trust Fund.
