A quality education is one of the greatest gifts you can give a child. To make that possible, many families have turned to 529 plans, which offer attractive benefits including tax-free growth, state tax-deductible contributions (depending on state), and the flexibility to change beneficiaries. These popular college savings plans also offer another advantage — the ability to front-load up to five years of annual exclusion gifts. That means with the annual exemption of $15,000, you could set aside a total of $75,000 per grantor. You will, however, be unable to make annual gifts during the current year and the next four years.
For those concerned about estate taxes, there may be another alternative for financing educational expenses — irrevocable trusts.
While 529 plans have their benefits, they do have limitations. One limitation is that any contributions you make beyond the annual exclusion will be applied toward your lifetime gift and estate tax exclusion, currently $11.4 million. For those who require estate tax planning strategies, this could be a problem. There is, however, another solution: using an irrevocable trust to fund educational costs and reduce future estate taxes. Here's how it works:
Using an irrevocable trust versus a 529 plan offers a variety of benefits, including:
Given the complicated nature of estate planning, I strongly recommend you consult with an experienced professional. They can help you evaluate the benefits and drawbacks of each option, including the legal and compliance costs involved with trusts and the loss of income tax benefits from a 529 plan.
Working alongside a financial professional can help you navigate the future and reach your potential. To learn how our Wealth Advisors can help you, please call 1.877.670.5400, visit us online, or visit your nearest Citizens branch.
© Citizens Financial Group, Inc. All rights reserved. Citizens is a brand name of Citizens Bank, N.A. Member FDIC
Disclaimer: Views expressed may not necessarily reflect those of Citizens Bank. The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.
Clarfeld Citizens Private Wealth is a division of Citizens Bank, N.A. that offers banking and investment products. Investment Management Services are offered through Clarfeld Financial Advisors, LLC, an SEC registered investment advisor. Insurance products are offered through Estate Preservation Services, LLC, or an unrelated party. Clarfeld Financial Advisers, LLC and Estate Preservation Services, LLC are both affiliates of Citizens Bank, N.A. Deposit and credit products are provided solely by Citizens Bank, N.A., Member FDIC.