Can I Pay For My Grandchild’s Education Directly?
You can. When you make direct tuition payments, that does not count as a gift so you do not have to worry about your grandchild getting taxed on it. The tuition payment also will not count towards any other gift limit for that year, so if you give your grandchild other gifts in cash during the year you do not have to worry about it.
There is a risk here though. If you pass away before your grandchild completes their degree, the funds might still be part of your estate when they are needed. You can work with our estate planning lawyers to make sure that this money is set aside for future expenses and that they are shielded from taxation.
Can a Trust Be Used to Pay My Grandchild’s Education Expenses?
There are also trusts that can be used to pay your grandchild’s education expenses. Some options include:
Minor trust: You can contribute to this kind of trust as long as your grandchild has not reached 21 years of age. Gifts to the trust count as annual exclusion gifts when it comes to taxation. Once your grandchild turns 21, they can withdraw the funds for a limited time.
Crummey trust: You can turn a minor trust into a Crummey trust or you can just set up a Crummey trust on its own. This trust actually allows you to set aside assets for multiple grandchildren. Any money put in here is removed from your taxable estate. However, it is important to note that this kind of trust can be considered a grandchild’s asset. So when they go to apply for financial aid, this could affect how much they are awarded.
Do I Need an Estate Planning Lawyer?
Unless you are an expert on taxes and trusts yourself, hiring an estate planning lawyer can make this whole process much easier. We can look over all of your options and figure out the best ways to pay for your grandchild’s education expenses. A seasoned attorney can help you make the most out of your assets while avoiding excessive taxation.
Talk to Our Team Today
If you want to learn more about all of your options, contact Herting Law, PLLC today. We can schedule a consultation and help you go over your finances. We will help you find the smartest way to help you contribute towards your grandchild’s education.