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Estate Planning Tips for Post-Secondary Education

At Legacy Law Centers, we understand how important it is to plan for your children’s post-secondary education. That is why we are here to help you determine which legal tools you need to include in your estate plan to provide for your family’s particular education needs.

Health & Education Exclusion Trust

A health and education exclusion trust (HEET) is a type of irrevocable trust that you customize to you avoid paying gift and generation-skipping transfer (GST) taxes on tuition and medical care expenses for your grandchildren and great-grandchildren.

If you pay tuition fees from a HEET directly to an educational institution on behalf of a beneficiary, it is not subject to the gift tax. If these payments are made on behalf of a “skip person” from a non–GST tax-exempt trust, they won’t be subject to the GST tax.

To qualify for these benefits, at least one trust beneficiary of the trust has to be a charitable organization with significant interest.

Irrevocable Gifting Trust

An irrevocable gifting trust can be used to hold and invest property for your chosen beneficiaries for a variety of purposes besides education. There is also the benefit of the annual gift tax exclusion or lifetime gift tax exemption with an irrevocable gifting trust.

If you plan on using the annual gift tax exclusion to shelter gifts to the trust for gift tax purposes, then you will also need to include a Crummey power. A Crummey power is a technique that allows your beneficiary to receive a gift that would normally be ineligible for gift tax exclusion but makes the gift eligible. To pull this off, your beneficiary must have the opportunity to withdraw the amount that was gifted after each annual gift is made

A Provision in a Revocable Living Trust

If you have already set up a revocable living trust, then adding a provision for the payment of your child’s or grandchild’s education expenses can be an easy way to lend financial assistance in case you pass away before they complete their post-secondary education.

After your death, the money held in the trust will be available to be used as you have specified in your legal documents. One benefit is that during your lifetime, you can change the trust provisions whenever you want in case you ever have second thoughts. You can also create your definition of education expenses.

Prepaid Tuition Plan

With a prepaid tuition plan, you can buy units or credits for your beneficiary’s future tuition and mandatory fees in advance, and at the current prices. This strategy helps you avoid paying higher costs in the future. it is important to note that prepaid tuition plans are only available for public and in-state colleges. These plans also can’t be used to prepay tuition for elementary and secondary schools.

Impact on Financial Aid

It is important to note that if you set aside money for a child’s or grandchild’s education expenses, it can affect whether they qualify for need-based financial aid. The identity of the account owner impacts whether the account must be disclosed on the Free Application for Federal Student Aid (FAFSA) and the weight it will be given in the need-based calculation. In general, most types of trusts are required to be reported on the FAFSA as an asset of the beneficiary.

For assistance with post-secondary education planning, please call our talented and experienced lawyers at (571) 777-1000 to schedule a complimentary case review.

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