Many families in Ohio can benefit from a 529 education savings plan. It allows for tax-free growth of assets inside the account, and contributions are generally deductible at the state level. Another benefit is that it features clear investment plans that parents can understand. In some cases, parents can even change who the beneficiary of the plan is. However, there may be a better strategy for funding a child's education that could also have estate planning benefits.
For those who have an estate worth more than the $5.49 million estate tax exemption, it could be possible to directly fund educational expenses. This is ideal because educational expenses paid directly to a college or university do not count toward a person's gift exemption of $14,000 per year. A parent can also put money into a trust that can be used for educational expenses or any other purpose as defined by trust documents.
Putting money into a trust as opposed to a 529 may be beneficial because assets in a trust can be invested any way the person sees fit. Furthermore, any assets placed in a trust can be used after a child finishes with his or her education. The money or other assets in the trust may enjoy additional protections from creditors today and in the future.
The use of trusts as estate planning tools may make it easier to avoid probate or allow for added privacy when transferring assets. In most cases, trusts can be written as broad or as narrow as its creator wants. An attorney might be able to help create a trust or review any trust documents that may currently exist. This could make it easier to properly craft such a document or make necessary changes.