Using an irrevocable trust to pay for a child or grandchild’s education has many benefits. However, there is one important caveat.
To accomplish the gift tax benefits described, contributions must be made available to the beneficiary or beneficiaries for some time period. Generally, the beneficiaries have the right to withdraw some portion of the trust contributions for a limited period of time.
The trustee must send letters to the beneficiaries after a contribution to notify them of their withdrawal powers with respect to that contribution. Unless exercised within a specified time period – usually 30 days – the withdrawal rights will expire, and the assets will remain in trust.
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