What to do about misused educational trust funds?

My wife passed away 2 years ago. During the funeral, in lieu of flowers, people donated money for my daughter’s education. My stepmother-in-law is an attorney and she asked for the funds to be made out to the “Daughter’s Name” Educational Foundation, and we were going to set up a 501(c)(3) non-profit corporation for the money to be put in. The checks were sent to my mother-in-law. She instead took all the funds and set up a 529 in my daughter’s name, making herself the owner. There was over $15,000 donated by my family and friends. Do I have legal grounds to recoup our share?

Asked on September 8, 2011 under Estate Planning, South Carolina


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

You first need to speak with your step-mother-in-law about the representations she made to friends and family about creating a non-profit corporation for your daughter's education and the the reasons why she created a 529 educational savings plan for your daughter where she is the owner instead.

My assessment is that the costs for creating the non-profit corporation would have been too expensive and time consuming to create and maintain as opposed to the 529 savings plan for your daughter. The 529 savings plan does the same thing as the intended non-profit corporation that you mention for less expenditures of time, effort and money. Specifically, saves money for your daughter's education in the future.

I suspect that although the step-mother-in-law has the 529 savings in her name, she is simply holding is as a guardian for your daughter and has done nothing inappropriate.

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