Any time a friend passes away, it is a tragedy. However, this tragedy is compounded when the friend leaves behind children who still need care and financial help. One way to honor a friend's memory is by establishing a fund to help those children. There are a variety of funds available, each with their own advantages and disadvantages.
Uniform Transfer to Minor Account
A Uniform Transfer to Minor Account is a good choice when there are a number of people who want to contribute to a child's future. First, anyone is allowed to contribute to the fund and there are no contribution limits. The only downside is that contributors have no control over how the money is used. An adult, usually a surviving parent or guardian, is in charge of the fund while the child is a minor. However, when the child reaches adulthood, he can use the money in the fund however he wishes.
Prepaid Tuition Plan
A Prepaid Tuition Plan is a state-sponsored fund that guarantees tuition prices at participating state colleges and universities. The advantage to this type of plan is that it gives contributors more control over how their money is spent. Although they can't make financial decisions for the fund, contributors know their donations are earmarked for the child's education. Furthermore, many of the plans have the added security of backing by the state. A downside to these funds, though, is that enrollment can be limited and usually only basic tuition costs are covered.
529 College Savings Plan
A 529 College Savings Plan also assures contributors that their money is being spent on education. In fact, this type of plan can cover all of a child's college expenses, not just tuition. In addition, these plans have open enrollment throughout the year so it is easier for a organize for a friend's children. However, these plans can be riskier than a prepaid tuition plan because they are not guaranteed or insured by the state and, as with any long-term investment, they are subject to market fluctuations.
Many people think that trust funds are only for the wealthy; however, they can be set up for a variety of circumstances and income levels. An advantage to a trust fund is that it can include many different assets, not just cash. Therefore, there are many different ways for people to contribute. Similar to the Uniform Transfer to Minor Account, a trust fund allows the child to have control when he reaches adulthood. The laws governing trusts are complex and will generally require the help of a lawyer to set up.