Orsbon & Fenninger, LLP

Estate Planning and Estate Administration

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Educational trusts and estate planning

Parents and grandparents living in North Carolina are often concerned about the cost of higher education. These individuals often seek out ways to begin saving and investing early so that their children and grandchildren will be able to pursue their educational goals and not graduate with burdensome debt.

One savings option that is commonly used is a 529 plan, an educational investment account that offers attractive tax benefits to the contributor. While these plans can be a wise move for many middle and working-class families, there are some drawbacks. The first is that there are limits to the contributions that can be made to these accounts. Secondly, the funds can only be withdrawn for educational purposes, which may not always meet the needs of the beneficiaries.

Couples and individuals with high assets may instead decide to set up an irrevocable trust with the child or grandchild as a beneficiary while paying tuition costs directly to a trade school, community college, or university. Unlike 529 plans, there are fewer restrictions placed on how the funds in the trust can be invested, possibly maximizing their value. In addition to tax benefits, the trust allows the beneficiary flexibility in use of the funds. Not everyone plans to go to university and some may be better off in using the trust to finance a small business or to buy real estate.

Individuals and couples who are considering setting up these types of accounts may benefit from speaking with an experienced attorney. It is important that educational trusts are drafted correctly.

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