Sending your child to a private school or college can be a huge financial burden on families. However, many parents believe that a good education is one of the most important aspects of a child’s upbringing, and they are willing to make sacrifices to ensure that they are able to continue their education, no matter what happens.
Many parents save for tuition, but others put strategies in place to maximize their ability to pay for their children’s education in the long term. When planning your estate, there are several options available that could allow you to benefit from tax exclusions while building up a tuition fund. The following is an overview of some of the options that may be suitable for you.
Health and education exclusion trusts
A health and education exclusion trust (HEET) is a type of irrevocable trust. It could be beneficial because it may help you to avoid paying gift taxes and generation-skipping transfer taxes (GST taxes) if you choose to pay for a grandchild’s or great grandchild’s tuition. HEET is only available for supporting family members who are two or more generations younger.
Irrevocable gifting trusts
Irrevocable trusts help you to hold and invest property while being excluded from the annual gift tax or the lifetime gift tax. Your beneficiaries can use the funds they inherit for purposes beyond their education.
If your child is not yet attending school, you may want to start saving for their future tuition costs. This could be done through one of the two types of 529 plans: education savings plans and prepaid tuition plans, both of which have specific tax advantages.
If you want to ensure that your children or grandchildren get the best possible education, start by looking into how your estate plan could help you to put a tax-smart strategy into place so that you can take confident action.