Setting Up a Trust to Pay for College

Families can create family trusts set up to pay for the education of their children. Parents can set up discretionary trusts or control how their children receive the assets from the trust. Families can also put spendthrift provisions in the trust to protect the assets from the reach of any creditors that the children may have.

Setting up a trust for college savings can be advantageous because it can reduce the size of the parents’ estate without giving the children outright control of the money. One of the main disadvantages though is that any potential financial aid will be reduced because the income and principal of the trust have to be listed on the FAFSA as assets of the child.

See Emily Driscoll, How to Pay For College: Creating a Family Trust, Fox Business, Oct. 10, 2011; see also William Alan Nelson II, Creating a “Family Trust” to Pay For College, Wealth Strategies Journal, Oct. 11, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.