For many families, education planning begins with a simple question: “How should we save for our children or grandchildren?”
For years, the 529 plan was the default answer, but as wealth transfers accelerate, the answer has become more complex. Education planning is no longer just about funding tuition. Families today are also considering Uniform Transfer to Minors Act accounts and trusts as part of a broader strategy that includes education funding, but also tax planning, asset protection, estate planning and family values.
The reality is that there’s no one-size-fits-all solution. Each vehicle serves a different purpose, and in many cases, the most effective strategy involves using more than one.
When working with multigenerational families, it’s important to understand the tradeoffs and help families align financial decisions with both education goals and long-term legacy planning.
The 529 Plan
For many families, the 529 plan is the starting point, and for good reason.
These plans offer tax-deferred growth and tax-free withdrawals when funds are used for qualified education expenses, including tuition, room and board, books and certain K-12 or graduate school expenses, as well as professional certifications. In addition, many states offer income tax deductions or credits for contributions.
Another advantage is that the account owner, not the beneficiary, retains control of the assets even after the child reaches adulthood. This is especially appealing to parents and grandparents who want flexibility over how and when funds are used.
Recent legislative changes have made 529 plans more attractive. Under certain conditions, a certain amount of unused 529 assets can now be rolled into a Roth individual retirement account for the beneficiary, addressing concerns about overfunding.
While 529 plans offer strong tax benefits for education funding, non-qualified withdrawals may result in taxes and penalties on earnings. Families that are uncertain about other sources of education financing may want additional flexibility.
A 529 plan may be appropriate when families:
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Are specifically focused on education funding;
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Want tax-advantaged growth potential;
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Prefer to retain parental or grandparent control;
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Foresee no other need for the funds; or
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Want a simple and efficient planning account.
UTMA Accounts
UTMA accounts offer a different kind of flexibility. Unlike 529 plans, UTMA assets aren’t limited to education expenses. Funds can be used for future opportunities, such as a first home, entrepreneurial pursuits or other expenses that benefit the child, making these accounts appealing to families seeking greater flexibility.
UTMAs can hold a wide range of investments, including cash, securities, and, in some cases, alternative assets. Because the assets ultimately belong to the child, there are no restrictions on their use for educational purposes.
However, that flexibility comes with tradeoffs. One of the most important distinctions is that at the age of majority (typically 18 or 21, depending on the state), the child gains full control of the account. At that point, parents or grandparents lose control over how the funds are used. Families should also be aware of “kiddie tax” rules, which may result in some investment income being taxed at the parents’ rate. Additionally, UTMA accounts can affect financial aid eligibility because they’re considered student assets under federal aid formulas.
UTMAs are particularly useful when the goal extends beyond tuition, such as funding a future home purchase, business venture or other life milestones. Families should carefully consider the implications of transferring significant assets at a young age.
UTMA accounts may work well for families who:
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Want flexibility beyond education expenses;
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Intend to teach children about investing and financial responsibility;
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Don’t anticipate the value of the account to be a problem for an 18/21 year old; or
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Want assets legally designated for the child without the complexity of a trust
Trusts
Trusts are often the first choice for families with larger estates or more complex planning goals. A trust might also be worth considering, though, if your client isn’t sure if other family members might one day help with education costs. In these instances, a trust can provide both asset protection and spending flexibility.
Unlike 529 plans or UTMA accounts, trusts can be customized to align with family intentions. A properly drafted trust can specify how funds may be spent and when the beneficiary may access them. These customizations can be as general or as specific as desired.
Trusts can support education while protecting family wealth across generations. For example, a trust can provide for tuition payments while delaying access to leftover funds until a beneficiary reaches a certain age or milestone. Trusts may also offer creditor and divorce protection, as well as estate tax planning opportunities, depending on their structure and jurisdiction.
This flexibility comes with added complexity and cost. Trusts require legal drafting and may require ongoing administration and coordination among attorneys, advisors, and tax professionals. For many families, trusts are less about education alone and more about stewardship, governance, and the preservation of family wealth.
Trusts may be appropriate when families:
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Are not sure if other family members might one day pay for education costs;
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Want a flexible savings vehicle that maintains control over assets;
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Desire asset protection or special distribution provisions;
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Are concerned about beneficiary maturity or financial discipline; or
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Want to create multigenerational funding strategies
A Combination of Vehicles
The most effective planning often combines several vehicles. Families may choose to fund 529 plans while also establishing trusts to support future generations beyond college expenses. The key is to understand what each vehicle is designed to accomplish and the family’s ultimate goals.
For example, a family may use:
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A 529 plan for core education savings and tax-efficient growth;
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A UTMA account for flexible gifting and early investing education; and
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A trust for long-term legacy planning and controlled wealth transfer.
Common Mistakes
Education planning today is no longer just about paying for college. Increasingly, these decisions are tied to broader goals around tax efficiency, family governance, and multigenerational wealth transfer.
One common mistake is overfunding 529 plans without a long-term strategy for unused assets. While recent rule changes have improved flexibility, excess balances can still create inefficiencies if education plans change.
Families also frequently use UTMA accounts for larger gifts without fully considering the consequences of transferring significant assets to a child at a young age. In some cases, this can unintentionally conflict with broader wealth transfer objectives.
On the other end, some families avoid trusts altogether because of perceived complexity or cost, even when greater control, asset protection or multigenerational planning may be warranted.
Perhaps the biggest challenge is treating these vehicles as isolated decisions rather than components of a coordinated strategy. Without thoughtful planning, families may miss tax opportunities, create unintended outcomes or lose flexibility over time.
The most effective education and wealth transfer strategies are rarely built around a single account type. Instead, they’re designed around the family’s broader objectives, including flexibility, control, tax efficiency and legacy planning.
For advisors, these conversations present an opportunity to move beyond product selection and help families think more intentionally about how wealth can support future generations.
Whether through a 529 plan, UTMA account, trust or a combination of all three, the goal isn’t simply to fund education but to align financial decisions with the family’s long-term values and vision.
