One of the main objectives of many testators who are putting together an estate plan is to provide resources for their loved ones. People with well-paid jobs or substantial personal property may want to help their children or grandchildren achieve similar levels of success.
Setting aside resources to help pay for college is one way to achieve that goal. There are various ways to integrate educational savings into an estate plan. Some people set funds aside in a trust and indicate that beneficiaries should use those resources for educational costs. Other people may decide to fund a 529 plan as part of a broader estate plan.
529 plans offer tax benefits
There are numerous aspects of a 529 plan that make it a useful tool for those hoping to help cover educational costs. The contributions made to a 529 plan can offer tax benefits for the person funding the plan. It is even possible to make contributions in addition to providing gifts for a specific beneficiary without triggering gift taxes.
Additionally, people can avoid taxes when withdrawing funds from a 529 plan. Provided that they use those resources to cover eligible educational expenses, withdrawals from a 529 plan may not increase someone’s taxable income for that year.
529 plans reduce the risk of financial abuse
Assets set aside in a will to cover educational expenses and even funds in a trust might end up used for other purposes in some scenarios. Manipulative conduct by beneficiaries and embezzlement by trustees or personal representatives could diminish how much someone has to help cover educational costs later in life.
A 529 plan is an outside financial account that is less susceptible to fraud and improper withdrawals than other types of financial accounts. Additionally, it is possible for a testator hoping to contribute to a young adult’s education to make strategic contributions to a 529 plan already started by the child’s parents or other family members.
If an adult aspires to help a child afford a higher education, then a 529 plan could be a valuable tool for achieving that estate planning goal. Looking at different ways of achieving certain legacy goals can be beneficial for those with enough resources to craft a specific financial legacy.