Shifting Estate Assets through Health and Education

A hot topic of conversation is the rising costs of both health care and tuition. It is nearly impossible to not have some personal experience with these rising costs either personally or through the stories and experiences of family or friends. For those who are fortunate enough to not be dealing with health care or tuition costs at this time, it may be a good opportunity to consider planning for such costs that may arise in the future.

Planning Ahead Eases the Burden

Historically, some level of education has typically been necessary to acquire a job that provides a decent living for an individual and their family. The “minimum” level of education necessary to reach this goal has changed over time trending toward more education. It’s quite possible that someone reading this is the first in their family to have earned a bachelor degree. However, in today’s world it is almost imperative to have at least a bachelor level education. Unfortunately, the cost of such an education is becoming prohibitive. Luckily, there are estate planning opportunities available to help individuals put money away for their children or grandchildren for purposes of their health or education.

One such option is the Health and Education Exclusion Trust (HEET). This trust gives the grantor the ability to set aside assets to be used for the health and educational expenses of children, grandchildren, and even distant descendants. While the funds cannot pass to the beneficiaries directly, the indirectly benefit by having the funds available to cover the health and education costs of their children, saving them money while still providing for a quality education.

While HEETs are excellent vehicles for health and education planning, their true value lies in their multi-functionality. Philanthropically-minded individuals can also choose to add a charity as an additional beneficiary. This provides the twofold benefit of incorporating charitable giving into their estate plan, while also avoiding generation skipping tax (GST) liability on funds leaving the trust, so long as they are disbursed as “qualified transfers.” A qualified transfer pertains to funds that are directly transferred from the trust to the educational institution or medical provider.

These dual purposes make HEETs an attractive option, especially for high net worth individuals. HEETs also provide more flexibility than other similar options such as 529 plans. Unlike 529 plans, which are limited to only secondary education, a HEET can pay tuition costs for any educational level.

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