Estate planning often involves setting aside educational funds for children and grandchildren.

It is common for people to consider helping out their children and grandchildren for educational purposes, when setting up estate planning. There are a few good ways that the educational expenses can be covered, according to The Legal Intelligencer in "How to Make Tax-Efficient Gifts to Children, Grandchildren for Their Education," including:

• 529 plans are investment vehicles that allow people to put money in tax free. The money can then be used for the educational expenses of a beneficiary later. Withdrawals for education are also tax free.
• Irrevocable trusts are another option. They do not have the same tax benefits. However, they can be grantor retained trusts allowing the settlor to have control over the assets, so they can be invested appropriately.
• Another option is to pay the child's or grandchild's tuition directly. Educational gifts made in this way are not subject to gift taxes.
• IRAs can also be used for this purpose when gifts to children or grandchildren are used to fund their own IRAs. However, you should consult with an accountant first, because there may be unintended tax consequences, if not done properly.