In Education, We Trust

Most state qualified tuition programs permit a trust to be an account owner of a 529 savings plan. The trustee would open the 529 savings account with cash already in the trust, naming the trust as the account owner and the trust beneficiary as the 529 savings account beneficiary. Advantages include:

• Succession. A trust-owned 529 savings account solves the problem of providing for a successor account owner if the account owner becomes disabled or dies. The successor trustee would automatically become the successor account owner.

• Multiple beneficiaries. Some donors create separate 529 savings accounts for a class of beneficiaries (such as grandchildren, or nieces and nephews), with the intent that if one member of the class does not use all of the funds for his or her education, the beneficiary on the account can be changed to another member of the class who is incurring greater education costs.

  Such an intention can be better carried out with a trust for multiple beneficiaries. The trust can contain specific directions to the trustee to use the trust funds for higher education, even if distributions among the beneficiaries are unequal.

• Creditor protection. Even if state law does not protect the 529 savings account from the beneficiary’s creditors, the trust may contain a spendthrift clause that protects the trust assets.