Does setting up a trust for college make more sense?
Only if you plan to transfer to your children a significant amount of money, at least $50,000. A trust allows you to set guidelines for when and under what circumstances your child gets to spend the money. But trusts are expensive. Legal fees to set one up can run several thousand dollars. You also have the ongoing costs of trustee fees and preparing special tax returns. New tax-law alternative: Contributing to a Section 529 plan. The new tax law allows states to set up special programs under which parents can contribute as much as $100,000 total, with up to $50,000 in a five-year period, to a savings plan without having to pay gift tax on the money transferred. The plan will invest in mutual funds, and the assets will grow on a tax-deferred basis, just like an IRA, until they are withdrawn. At that point, the investment income that has been generated over the years is taxed at the children s rate rather than the parents rate. New Hampshire, New York and Delaware were the first states
