Does your child wish to attend a trade school or university? If so, you want to make their dream come true, but you’re overwhelmed by how expensive post-secondary education is. After all, the average cost of college tuition is $21,035 per year for public universities and $32,769 per year for private universities.
You can reduce school expenses by setting up an education trust for your child, which they inherit to pay for books, tuition and other related costs. Learn about its benefits and downsides.
Pros of an education trust
There are a few advantages to creating an education trust:
- Parents and grandparents can rest assured that the money is put to good use. Some beneficiaries squander their inheritance on frivolities and end up broke within a few months or years. Education trusts are for school-related expenses only, which can keep a beneficiary’s spendthrift tendencies at bay.
- Many education trusts are irrevocable. An education trust’s irrevocable status guards it against creditors. This could be important if an heir builds up unexpected debt for some reason or goes through a bitter divorce.
Cons of an education trust
Education trusts have some drawbacks as well:
- An education trust can affect a beneficiary’s financial aid eligibility. Suppose your child or grandchild’s trust only covers a fraction of a school’s tuition price. However, it’s too high for them to qualify for financial aid. Unless you have money saved up elsewhere, it could be difficult for your family to afford the rest of the tuition price.
- A beneficiary can’t use an education trust toward non-school-related finances: Because education trusts are limited to tuition, books and other related expenses, your beneficiary wouldn’t be able to use the funds for medical bills or utilities.
Establishing an education trust can make paying for college less of a headache. Nevertheless, it’s important to know about its disadvantages, too. If you’re unsure whether an education trust is appropriate for your child or grandchild, consider seeking legal guidance.