Are There Estate Planning Benefits For Opening A Connecticut 529 Savings Plan?

You were blessed with nine grandchildren, all of whom are approaching high school. You want to provide something for their college education fund, especially as costs continue to rise. Would it make sense to keep money in a growth savings account? What about creating a trust with specific terms indicating money is only withdrawn to pay tuition? This is an option, but what happens if one of your grandchildren does not attend college, or you were to pass away before distributing your savings to each child. There are more viable options including opening a 529 savings plan.

Creating a Revocable Trust for Education Savings

Parents and grandparents have the option to create a revocable trust for college and education savings, in addition to investment in a 529 Plan. However, it is important that the trust contains guidance about withdrawal eligibility and who is designated as a beneficiary. Grantors also need to consider who they will choose as a trustee and what happens to funds held in the trust in the event of their passing or the beneficiary’s passing. A revocable trust can be designed so that assets are protected from prying hands or withdrawal penalties.

Many people choose to save for college by contributing to a bank savings account, adding money in volatile investment accounts, or utilizing a certified deposit account with dismal returns. While none of those options are wrong, creating a revocable trust avoids the need to pay bank maintenance fees, and fiduciary assets held in the trust can still grow interest. Establishing a revocable trust also guarantees that your beneficiary cannot spend hard-earned funds on a frivolous purchase when the funds are earmarked for education. You set conditions on when and if money can be distributed, such as directly to an educational institution to pay a tuition bill. Creating a college savings plan now through a revocable trust protects your beneficiary’s educational and professional future and may ensure they do not have to borrow student loans at high interest rates.

What is a Connecticut  Higher Education Trust 529 Savings Plan?

A Connecticut Higher Education Trust (CHET) 529 Savings Plan is a state-sponsored, tax-advantaged 529 college savings plan that is helping families and individuals plan for the cost of higher education. CHET is a tax-advantaged, low-cost savings program specifically designed to help families save for future college costs. The funds can be used at accredited colleges and universities across the country, including vocational and technical schools, and some colleges abroad.

New enhancements to the CHET plan include no minimum amount to open a CHET Direct 529 account, no annual account fees, and free planning and guidance for families in their college savings journey. Connecticut families can also take an income tax deduction on contributions to CHET accounts. The withdrawals are limited to educational expenses. Withdrawals made for non-educational purposes are taxed and subject to a ten percent withdrawal penalty.

Plan participants can choose investments or select a portfolio containing a mix of stocks and bonds available through the plan’s administrator, Fidelity Investments. All investments are guaranteed by the Connecticut State Treasurer.

Contact Connecticut Legacy Planning Attorney Brian S. Karpe 

Planning for your child’s or grandchild’s future is full of uncertainty. You want to give your loved ones flexibility while also ensuring you receive the best return on your investment. And with education costs exceeding previous predictions each year, it is important to consider all options. Ask Canton estate planning attorney Brian S. Karpe if enrolling in a CHET plan or creating a revocable trust is right for your family. Call today to schedule a consultation.

 Resource:

portal.ct.gov/OTT/Financial-Education/CHET/Connecticut-Higher-Education-Trust