While it is smart to set funds aside for your children’s or grandchildren’s future education expenses, there is still the possibility that not every penny you have set aside will actually be used for college. Some people earn scholarships and no longer need all of the money set aside, while others may attend a trade school that costs substantially less than what you planned for. If you are wondering what you can do with money leftover in a college savings plan, the answer will depend on how you managed the funds.
Health Education Exclusion Trust
Funds that are put in a health education exclusion trust can be used for the education and medical needs of multiple beneficiaries across multiple generations. If there is money remaining in a health education exclusion trust because one beneficiary did not use it, then a different beneficiary can access and use the leftover money if they decide to go to college.
Irrevocable Gifting Trust
If you set up an irrevocable gifting trust, you can include instructions for how the trustee should handle the remaining funds if the beneficiaries do not need them. The instruction you include in your trust documents can specify that the money is used to buy a house, start a business, etc.
Revocable Living Trust
If you want to add a provision to your existing revocable living trust for the future education expenses of your child or grandchild upon your death, then you can also include instructions for what you want to happen with the remaining money if the full amount is not necessary. Another benefit of using a revocable trust is that you can change your mind and draft additional contingencies into your plan before you pass away.
Revocable Education Trust
Similar to a revocable living trust, a revocable education trust can also be altered up until your death. This means you can amend or revoke the trust if your or the beneficiary’s life circumstances change or if you want to add or remove beneficiaries.
Accounts Created by Statute
Accounts that conform to the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act are set up to hold money and property on behalf of a minor. There are no education-specific requirements for use of the money with these accounts. The only generally understood prohibition is that the money should not be used for expenses that are normally deemed to be parental obligations, such as food, clothing, and shelter. When the minor turns eighteen, the money is turned over to the owner to use freely intestate statutes.
State or Federal Education Plans
Internal Revenue Service Publication 970 sets forth similar regulations regarding 529 plans and Coverdell education savings accounts (ESAs). The money held in 529 plans and Coverdell ESAs can be rolled over from one account to another of the same type. The designated beneficiary on the account can also be changed to a member of the beneficiary’s family. The rollover can be used for the benefit of the same beneficiary or another member of the beneficiary’s family, as long as they are under the age of thirty. However, the age limitation does not apply if the new beneficiary is a special-needs beneficiary.
Legacy Law Centers is here to answer all of your questions regarding college savings plans, and we will gladly walk you through all of your options so you can make informed decisions. Call us today at (571) 200-5559 to request a complimentary review.