Health and Education Exclusion Trust

July 18, 2019

We often have clients who wish to leave assets to their grandchildren and skip over their children, who already have enough wealth. While there are ways to accomplish this goal, the IRS imposes a Generation Skipping Trust Tax which can thwart these efforts.

To avoid the tax, a Health and Education Exclusion Trust (HEET) may help accomplish the goals of providing for grandchildren. The funds in this type of trust can only pay for education and medical expenses of the beneficiaries. With enough assets, a HEET can pay the educational expenses of all grandchildren from kindergarten through graduate school. This helps the parents as well because they are not responsible for these educational expenses.

The one caveat with a HEET is that at least one beneficiary of the trust must be a charitable organization. Often the charitable organization is a school receiving qualified transfers per IRS rules.

HEETS may be created during the grantor’s lifetime, although keep in mind HEETS are irrevocable trusts, therefore the grantor loses control of the assets. It may also be created as a testamentary trust in the will. In that case, estate taxes may apply depending on the size of the estate, but it will not invoke gift tax implications.

For more information on providing for your grandchildren’s education and medical expenses, speak with an experienced estate planning attorney at Stouffer Legal at 443-470-3599 in the Greater Baltimore area.

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