A living trust is similar to an informal in-trust account, but the rules can be much stricter. It is sometimes called an inter vivos trust. That means you want your beneficiary to have the money even if you are still alive. 

How does it work?

There are two types of living trusts:

1. A revocable living trust: This means you can change your mind any time and take back some or all of the money you put in. However, if you do this you will have to pay tax on all the investment income.
2. An irrevocable living trust: With this choice, you give up all rights to the money you put in. You can never take it back. In return, you get the same tax breaks that an informal in-trust account offers.

Tip: Living trusts are complex legal contracts. You will need a lawyer’s help to set one up. The contract will set the date when your beneficiary gets the money. Sometimes people also set rules about what their beneficiary can do with the money. Read all papers carefully and make sure you understand fully how the trust works before you sign any contract.

See how this option compares to other ways of saving for your child’s education.