Congratulations on planning ahead for your child’s educational future! A 529 college savings plan is a great idea for many families. Now that you have established the 529 plan, you may be wondering if you should still talk to an attorney about creating a trust to handle any assets you leave behind? The short answer is, yes!
There are at least 4 great reasons to also set up a revocable living trust in addition to the 529 plan for your children:
- Your son or daughter might get a scholarship! A scholarship might mean they do not need all the college money you invested in the 529 plan. So, what happens next? If you have already passed away, the next owner of the plan decides what to do with any money left over. You can name a successor owner, but you can’t control what happens to the money. If those assets were in a trust, you could control how the remaining money is used.
- You have non-cash assets to leave your children. Deposits to 529 plans can only be made in cash – what about your other assets such as the family home, stocks, or grandma’s wedding ring? A trust can own anything that a person can. In a trust you can direct how those non-cash items are distributed, including whether or not they should be sold or held for safe keeping until your children reach a certain age.
- You want a wide range of investment options. College savings plans provide important tax advantages for many families and should always be considered. However, 529 plans typically offer a limited range of choices that may not satisfy your investment goals. By setting up a 529 plan and a trust you can maximize flexibility.
- You can’t predict the future. What if education expenses aren’t your child’s greatest need after high school? It may be in your child’s best interest for account funds to be used for a non-educational purpose, but the successor owner is not bound to what you would have done if you were alive. Instead, he or she is only bound by the rules of education accounts. But your wealth should pass the way you want – not the way the next owner of the 529 plan wants.
Working with a qualified estate planning attorney and financial advisor can help you answer those what-if questions about the future. Trusts provide flexibility that allow you to set the rules for how assets are used after you are gone. College 529 plans provide tax advantages for education savings, but allow almost no control when you’re gone. Working together, trusts and 529 plans can be a great way to make sure your beneficiaries are taken care of the way you intend.