U.S. tax laws provide a variety of tax breaks for higher education expenses, but high-income people are usually shut out of these goodies. Example: Joint filers can't claim the above-the-line deduction for tuition expenses if their adjusted gross income exceeds $160,000 ($80,000 if you are unmarried).
In a pinch, you can set aside money in custodial accounts for your kids, but then you must contend with the "kiddie tax" on investment earnings.
Strategy: Set up a Section 2503(c) trust (sometimes called a "minor's trust") for your children or grandchildren. The income is taxed directly to the trust. The kiddie tax never comes into play.
A Section 2503(c) trust has another distinct advantage over the better-known custodial ac-count: The trust can continue past the age of majority in the state where you live. That means you don't need to worry about a child squandering the dollars set aside for college. If you're ...(register to read more)