Education Funding for Young Beneficiaries

One way which a parent, relative or friend can help fund the education of a child is by the creation of a Crummey Trust. This kind of trust, which qualifies the parent or other donor for the gift tax annual exclusion ($14,000 per beneficiary), gives the trust beneficiary the power to withdraw contributions for a limited time (usually 30 days) after a contribution is made to the trust. It is unlikely that the withdrawal powers will be used while a child is a minor because only the child’s parents (or guardians) can exercise the withdrawal rights.

Once the withdrawal period passes, the property can be held in trust for the child’s benefit for whatever time period the grantor of the trust chooses, including for the child’s lifetime or beyond.

Crummey Trusts are good creditor protection vehicles because they can contain language which does not give the child rights to income or principal which can be garnished or attached by a creditor or made part of a property settlement in a divorce.

Consult your estate planning attorney for further information.

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