Can Your Estate Pay For A Beneficiary’s College Tuition?
With all the talk in the news about student loans, and the burdens that they put on people, most of us are aware of one thing: A college education is very expensive. You may have people in your family that see college in their future–or, if they’re too young to worry about that yet, you may want to make sure college is in their future.
Can your estate plan help with a family member’s college education? Is there a way to use your estate, to make paying for college easier? In fact, there is.
Avoiding Taxes Through HEET
There is a trust that is known as a health and education exclusion trust, or HEET. One huge benefit of this kind of trust is that, if used correctly, it will avoid gift or generation skipping taxes that normally apply to money left to loved ones.
In order to get the benefits of a HEET, you must be leaving the money to people who are two or more generations younger than you are, which normally will mean grandchildren, or great grandchildren. The payments must be made from the HEET trust, directly to the educational institution.
A HEET trust is an irrevocable trust, so you will not be able to access any funds that are transferred into the trust. You can create a HEET through your will, however, doing so won’t have the same state tax benefits. Because HEET is a trust, and because the money is being left or given to relatives that are two generations away, you are best off appointing an institutional trustee to manage the trust, as opposed to an individual.
Other Requirements of a HEET
One unique aspect to a HEET trust, is that it is required that the HEET trust provide 10% of its value annually, to a charity, or a nonprofit organization. That organization will be a co-beneficiary of the trust. So, for people looking to both take care of family, and take care of charities, this may be a good option. If you have your own charity, or foundation, you can opt for the 10% to go to your own organization.
If properly established, the HEET can pay for a beneficiary’s tuition and educational expenses. However, not all educational expenses will qualify. Books or housing aren’t considered educational expenses for the purposes of a HEET–those expenses can still be accounted for in other kinds of estate planning trusts or other types of planning, just not through the HEET.
A HEET isn’t for everybody. The purpose of a HEET is to avoid onerous taxes, such as a gift tax. However, if what you are leaving in your estate falls under the gift tax threshold, there is no need for HEET, or to deal with its requirements.
Call the Torrance estate planning attorneys at Samuel Ford Law today to discuss how your estate can take care of your loved ones.
Source:
philadelphiabar.org/WebObjects/PBAReadOnly.woa/Contents/WebServerResources/CMSResources/ProbateApril2007.pdf
