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TRUSTS EDUCATIONAL
TRUSTS
An
educational trust is one established, usually by parents or grandparents, to
ensure the availability of funds to finance higher education beyond high school
i.e. college, graduate school or some other post high school educational
pursuit, such as nursing or a technical school.
The
purpose of a trust is to ensure that the funds are available and are used as
directed by the creator of the trust known as the grantor, trustor, or maker. In
most states, a person attaining age 18 will inherit those funds set forth in a
person’s Will or if no Will under the laws of intestacy. It
is generally agreed that an 18 year old may not follow the wishes of his or her
parents or grandparents and use the money they inherit for pleasure pursuits and
not higher education. To
ensure that the money is used for those purposes and not spent in a manner that
would be detrimental to that child’s future, the educational trust sets forth
the terms and provisions, i.e. how long the trust will last, when funds are to
be distributed and also sets forth conditions such as no distribution until a
certain age i.e. 25 if the child elects not to pursue post high school
education. The
age could be lower of higher as you feel appropriate.
The educational trust can also establish that upon graduation from
college or its equivalent that one half of the funds remaining, if any, would be
distributed to the child and the balance at age 25 or all upon graduation.
The terms relating to age and amounts of distribution are the grantor’s
personal choice. The
person appointed as the Trustee should be a person that the grantor of the Trust
has complete confidence in to follow the directions set forth in the trust.
The trust can be as specific and detailed as the grantor wishes. An
educational trust can be a separate document to be funded by a life insurance or
a contingent residuary trust under the Will of the Grantor, or a living trust to
be funded during the life of the grantor. With
the prosperity the country is now enjoying, it is not infrequent that an
unexpected death of parents may cause large sums of money, perhaps in the
hundreds of thousands of dollars, or more, to be given to 18 year olds which is
a concern for any parent or grandparent. An
educational trust can be established as an irrevocable trust usually meaning
that the trust would be funded during the lifetime of the maker which in many
instances would be the grandparents or perhaps the parents if they have
sufficient wealth.
The usual, however, is to have it set forth as a contingent trust to be
funded upon death. As
a contingent trust under the Will, it will be a revocable trust in that the
person can change their Will at any time prior to death.
If it is a separate document strictly for educational purposes, i.e. a
separate trust, it is usually revocable until the time of death.
Either the residuary trust under the Will or a separate trust which had
been revocable, will become irrevocable upon the death of the grantor or maker. Charitable
Remainder Trusts
In
this situation a donor transfers property to an irrevocable trust and retains
either an annuity interest – in which the percent is determined at the
creation of the trust (CRAT) or a unitrust interest in which the percent of
trust is calculated annually (CRUT); at the end of the trust term the remaining
property is paid to designated charities.
Benefits:
Increased income; increase property passing to heirs through the use
of a separate wealth replacement trust.
Concerns:
Sale of the asset; loss of control over the proceeds.
Tax advantage:
The trust can sell highly appreciated assets without incurring a
capital gains tax; the donor is entitled to an immediate income tax charitable
deduction. Process:
Strict guidelines must be followed when drafting the trust; competent
counsel should be consulted to determine optimal terms. @
2003 James W. Pearson, Jr. ,
All Rights Reserved FOR
ADDITIONAL INFORMATION CALL THE TOLL FREE HELP LINE 1-800-232-1477 E-mail: lawyer@lawwalk.com JAMES
W. PEARSON, JR. Chair of the Federal & State Credit Union Department & Coordinator of legal consultations under the Family Legal Care Plans offered to credit union members. |
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