You, like many others, care about the young ones in your family. You want to see the possibilities grow for their future, for their capacity to enter a successful career, and for their ability to make a difference in the world.
If all of this rings true, you will likely have thought about setting money aside to cover college tuition costs or other educational expenses.
An education trust can be the best way to set money aside for your loved one’s future. Not only do education trusts offer the funds needed to expand their horizons when selecting a higher education program, but they can also offer significant tax advantages for both you and your beneficiaries.
Talk to New Mexico Financial & Family Law to learn more about your options for setting up an education trust. Our knowledgeable staff can discuss your goals and go over your options during an eye-opening consultation appointment.
Schedule your case review with no obligation today when you reach out to our New Mexico trusts attorneys at 505-503-1637 or contact us online.
You have many options available when setting up an education trust in New Mexico. To help you navigate them, it’s always in your best interest to speak with a New Mexico education trust attorney.
They’ll help you sort through the available information to arrive at the choice that makes the most sense for your current financial portfolio, your future goals for your loved ones, and your intentions for obtaining benefits like tax savings.
During your consultation, a New Mexico education trust lawyer will start by reviewing your general financial situation and your general goals for the future. Then, we will listen carefully to how you intend to set money aside for your loved ones and what exactly you hope to achieve by setting up an education trust.
With this information in mind, we will recommend a range of options available to you and your family. You may decide to contribute to New Mexico’s advantageous 529 plans, set up an independent education trust of your own, or combine one or both of these options with other estate planning vehicles, such as creating a trust fund that can help you achieve multiple goals at once.
At our law firm, we have built a reputation for a high level of client satisfaction because of this process. With our assistance, clients can ensure that multiple generations will be prepared for the future, ready to meet it head-on with the knowledge and skills needed to make a positive impact on the world around them.
A trust is a legal entity that owns the assets held within it. The trust is created and funded by a grantor, who assigns a trustee to manage the trust and ensure that it distributes money as intended to the eventual beneficiaries selected by the grantor.
If the trust is created during the grantor’s lifetime, then they are allowed to name themselves as a temporary trustee. The grantor can also include language in their will to create a testatory trust at the time of their death, which should designate a trustee and at least one alternate if the first trustee is unable or unwilling to fulfill their duties.
Once the trust is funded, the assets held within can appreciate. The beneficiary is then allowed to withdraw funds from the trust to pay for qualified expenses according to the criteria set by the trust’s language.
Whether managed by the trustee or the grantor, an education trust has a wide range of possible ways to contribute to it and grow its value. The managing party can use any number of assets to fund the trust, including:
Depending on the way the trust is structured, the grantor can also continue to make contributions to the trust throughout the remainder of their lifetime.
Assets held in the trust can be bought, sold, or transferred to grow the trust’s value. However, any withdrawals from the trust will be subject to taxation, especially if they end up benefiting the grantor instead of the intended beneficiary.
Contributions to an education trust count towards the grantor’s exemptions for gift taxes, estate taxes, and generation-skipping transfer taxes (GSTTs). This status means that the contributions can be tax-free up to the allowed amount.
There are both annual exemptions and lifetime exemptions. In 2025 (the time of this article’s writing), the exemption amount is $19,000 annually, or $38,000, for couples.
There is also a lifetime exclusion limit of $13.61 million, or $27.22 million for couples. If the grantor adds assets to the trust at the time of their death, they can use up the remainder of their lifetime exclusion amount.
Distributions from the trust may trigger income taxes, which can be paid either by the beneficiary or the grantor. If paid by the grantor, the payments do not count against their lifetime gift tax exclusion amount.
One major advantage of creating an education trust in New Mexico is that the grantor has wide discretion when determining how and when each distribution will take place, as well as how much. The grantor can designate that the funds will only be used towards a certain type of school, for example, a four-year institution, as opposed to a trade school.
They can even specify the school that the recipient must go to in order to receive the funds!
Distributions can be set to cover a certain expense entirely, or they can be a specific amount. They can also be set as a certain percentage of the remaining value of the trust.
However, think carefully about the future possibilities. As tuitions rise every year, it can be harder to predict how much money would be enough to meaningfully benefit your future recipients.
As such, it may be best to allow the fund to cover certain expenses with stipulations, such as requiring the beneficiary to finish in a set number of years or to maintain a certain GPA in their program.
One important aspect of an education trust is that it can be designed to last for years at a time (forever, even, in certain states). It can also be structured in a flexible way to fund the education of many future relatives if the fund is set up and maintained well enough to provide the funds to do so.
For example, an education trust can be created that will contribute to multiple 529 plans at once.
One confusing aspect about education trusts is that the term is often used to refer to public and private trust funds set up to provide tuition money or scholarships to a wide range of eligible recipients.
In New Mexico, for instance, there is a New Mexico Education Trust Board that governs the management and distribution of 529 plans.
A 529 plan is not a trust but rather a special type of tax-advantage account, similar to a 401(k) or a Roth IRA.
Earnings and withdrawals from a 529 plan are not subject to federal taxation when they are put towards qualified education expenses. Contributions to these plans will also reduce your amount of New Mexico state taxable income.
Some states also provide reciprocity, also counting contributions to an out-of-state plan towards deductions from in-state earnings.
Unlike an education trust, you are limited in the ways you can fund a 529 plan and grow the investments held within it. Also, the plan only applies to certain expenses for specific colleges, technical schools, and vocational programs.
Examples of qualified expenses a 529 plan can cover include:
Withdrawals from the 529 plan that go towards non-qualified expenses will incur federal taxes as well as a 10% penalty.
There are many pros and cons to both a 529 plan and an education trust.
When compared to an education trust, the pros and cons of a 529 plan include the following.
Some major pros and cons to consider when comparing an education trust to a 529 plan are as follows:
529 plans are easy to set up, but they don’t provide the level of control or flexibility of a true education trust.
Further, a 529 plan cannot include instructions for its use. Unlike an education trust, the beneficiary is free to withdraw funds from the plan for qualified expenses at any time they want.
However, 529 plans offer greater tax advantages, and they are easier to maintain or adjust, similar to a retirement account.
Ultimately, education trusts make the most sense for households with significant assets that want to reduce the size of their estate and/or provide funds for multiple future generations. As mentioned earlier, an education trust can even be used to fund multiple 529 plans at once, helping out households and individuals all across the family for decades — possibly even centuries — to come.
Education costs are rising every year, but at the same time, getting a degree can have a strong impact on individuals’ earning potential. Even more important, the experience of getting a true education, learning about the things you hold a passion for, and working your way through academic challenges to earn a place in a career is a critical rite of passage for many individuals.
New Mexico Financial & Family Law wants your loved ones to get every opportunity they can to excel and lend their minds toward the betterment of humanity. Getting an education these days isn’t cheap, but it is important, so you can obtain sound peace of mind by setting aside funds for that exact purpose.
Whether you decide to rely on a 529 plan, create an educational trust of your own, or create multiple savings and investment vehicles for your family to rely upon, we are here to help.
Reach out to us at any time to schedule a no-risk consultation when you call a New Mexico education trust lawyer near you at 505-503-1637 or contact us online.
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