A Stand-Alone Educational Trust is a type of trust that can pay for educational expenses, solve income tax issues, and provide an important piece of your estate plan. These trusts are specifically designed to manage socalled 529 plans, named after the Code section that creates these state sponsored savings plans. More and more clients are using 529 Plans as an educational savings vehicle for their children, grandchildren and other family members. These vehicles are immensely attractive because they are estate tax free, income tax free, and in some states protected from creditors. However, as you invest more and more money in 529 Plans, it becomes more critical that these assets are managed properly during your lifetime and after death.
A 529 Plan combined with an Educational Trust provides more flexibility to move assets between siblings (the one in medical school will need more money), and just as importantly, provides a smooth transition should you become incapacitated or die. Significantly, the trust funds can also be returned to you should you experience a financial emergency. You can create one Education Trust for all beneficiaries, or one trust for each beneficiary as his or her ‘special’ gift.