A trust can help to pay for a grandchild’s higher education
Over half of today’s grandparents expect to chip in a significant amount towards their grandchildren’s higher education. According to Fidelity Investments, the median amount of a grandparent’s contribution to college is $25,000. That money is needed. According to CourseSmart, college tuition has risen by over 1000 percent over the last 30 years. While getting a higher education has never been more expensive, it has also never been more important. Perhaps that is why recently student loan debt in America surpassed $1 trillion in debt, greater than the total amount of credit card debt in the U.S.
A comprehensive estate plan can help
Part of setting up a comprehensive estate plan involves personal values. Many people want to help their heirs with skyrocketing education costs. But leaving a chunk of cash to a young adult is not always the best idea.
A trust can help distribute assets for a specific purpose and guard against unwise spending. There are two common methods for leaving educational funds in a trust to grandchildren: a pot trust and individual trust. A post trust pools resources that the beneficiaries can draw upon according to the terms of the trust. This means a grandparent can set up a trust that would only allow funds to be used in order to pay tuition. In a pot trust, once all grandchildren graduate, or attained an age by which they should have done so, the pot trust can divide assets equally. However, a pot trust does require some thought. For example, if one student attends a college with a higher tuition, he or she will use up more of the trust resources – perhaps to the detriment of other grandchildren.
Individual trusts, on the other hand, allow each grandchild to have set funds and even individual terms. Grandparents with larger resources may wish to create individual trusts in order to have greater flexibility.
Like all estate plans, what is appropriate to put in the trust depends on individual circumstances and the values of the grantor of the trust. In addition, financial planning can help to decide what is appropriate. For example, in Michigan the MI 529 Plan allows tax deductions for grandparents that invest in a grandchild’s education.
Most people, when creating an estate plan, are concerned with leaving a legacy that is fair, helpful and does not cause arguments among heirs.
Grandparents in Michigan looking to ensure that their grandchildren have some help with college education should speak to an experienced estate planning attorney to discuss if a trust is right for them.