Strategic Ways to Save for Your Children’s Education

September 2, 2025

For high-net-worth families, education funding is an opportunity to align financial stewardship with legacy planning. 

For affluent families, saving for your child’s education is far more than simply covering future tuition bills—it’s about creating flexibility, minimizing tax exposure, and preserving wealth for future generations. From 529 plans and prepaid tuition to more complex trust structures, the right combination of strategies can help you meet education funding goals while complementing broader estate and wealth planning efforts. 

Start with Intentional Planning 

A thoughtful education savings strategy begins with clarity about your goals—whether you aim to fund private K–12 schooling, undergraduate and graduate education, or provide a legacy for grandchildren. Early planning allows you to take full advantage of tax-efficient tools, compound growth, and the annual gift tax exclusion, which in 2025 allows gifts of up to $19,000 per recipient ($38,000 for married couples), without reducing your lifetime exemption. 

Whether your goal is to provide full tuition support or help future generations avoid student debt, aligning your saving strategy with your broader wealth plan ensures that your contributions make the greatest impact. 

1. 529 Plans: Flexible and Tax-Advantaged 

529 plans remain one of the most powerful tools for saving education. These state-sponsored investment¹ accounts allow funds to grow tax-free and be withdrawn tax-free when used for qualified education expenses. 

Qualified expenses include: 

• K–12 tuition (up to $10,000/year per child) 

• Higher education tuition, fees, room and board, books, and more 
   

In addition to federal tax benefits, some states offer income tax deductions or credits for contributions. And perhaps most compelling, account owners retain control over the funds—even after the beneficiary reaches adulthood. 

2. Prepaying Tuition: A Gift That Bypasses Gift Tax 

Another smart strategy: paying tuition directly to an educational institution. These payments are not considered taxable gifts, regardless of amount, and don’t count against your lifetime gift and estate tax exemption. 

This can be especially appealing for grandparents who wish to fund education but are concerned about longevity or estate tax implications. Note that this strategy only works if tuition is paid directly to the school—not if funds are transferred to a parent or student. 

3. Custodial Accounts (UTMA/UGMA): Simpler, but Less Control 

Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are relatively straightforward ways to transfer assets to a child. A custodian manages the assets until the child reaches the age of majority—typically 18 or 21, depending on the state. 

While these accounts allow for flexibility in use (education or otherwise), they come with trade-offs: 

• The assets legally belong to the child and must be transferred to them at the age of majority 

• Assets in a child’s name can reduce eligibility for need-based financial aid 

• If the parent is also the custodian, the account may be included in the parent’s estate 

4. Education-Focused Trusts: Customization and Control 

For families seeking maximum flexibility and control, establishing an education trust—such as a Crummey trust or a Section 2503(c) “minority trust”—can be an effective approach. 

Crummey Trusts allow donors to make annual gifts that qualify for the gift tax exclusion while keeping assets in trust until the child reaches a designated age. The beneficiary is given a limited right to withdraw new contributions, satisfying IRS rules. 

Minority Trusts (2503(c)) are specifically designed for minors and allow assets to remain in trust if the child does not exercise their right to withdraw at age 21. These trusts are more complex to administer but can be tailored to meet specific family goals. 

5. Consider the Impact on Financial Aid 

For families with significant assets, need-based financial aid may not be a primary concern—but if it is, it’s important to understand how asset ownership and income sources are evaluated. 

• Child-owned assets, like custodial accounts, are assessed more heavily in aid formulas 
• Parent-owned assets, like 529 plans, have less impact 
• Grandparent-owned 529 plans currently do not affect FAFSA calculations (as of late 2023), but rules may change 

Income, rather than assets, often has the largest effect on aid eligibility—so distributions from trusts or 529s should be carefully timed and structured. 

A Multi-Generational Example 

Imagine grandparents with three grandchildren. They could: 

• Prepay $10,000 in private school tuition per child annually—a $30,000 gift with no gift tax consequence 

• Contribute $34,000 annually to each child’s 529 plan—another $102,000 moved out of their estate tax-free 
  Combined, these strategies allow $132,000 to be transferred annually in a tax-efficient way, while also supporting their family’s educational legacy. 

Closing Thoughts 

For high-net-worth families, education funding isn’t just about paying bills—it’s a vehicle for shaping a family’s future, passing on values, and supporting generations to come. Whether you’re considering a 529 plan, establishing a trust, or paying tuition directly, the right strategy can integrate seamlessly with your estate and tax planning. 

Work closely with your financial, tax, and legal advisors to develop a plan tailored to your family’s goals—because a smart education strategy today can benefit your family for decades to come. 

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1. Investment, trust and estate, and wealth planning products and services are Not FDIC Insured, Not guaranteed by the Bank, May Lose Value

This content is for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor for specific guidance tailored to your situation. First Western Trust Bank cannot provide tax advice. Please consult your tax advisor for guidance on how the information contained within may apply to your specific situation.