Gifts - Section 2503(b) trusts

A useful way of funding college costs is to set up a IRS Section 2503(b) trust. Parents can each contribute $14,000 or $28,000 ($13,000 or $26,000 in 2012) per year, per child to this kind of trust and still qualify for the annual gift tax exclusion. Funds within the trust can be accumulated and principal payments delayed until college. A 2503b)trust requires that all income be paid annually or more frequently to the beneficiaries. Principal payments can be delayed until age 21. Income distributions can be planned by various investment strategies. Principal can often be left in trust for periods of time exceeding the child's 21st birthday.

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