Some selfless people are willing to support the educational needs of others financially. Although there are several ways to accomplish that, this article will discuss an educational trust. An educational trust is not the same as a 529 Plan. A 529 Plan is a means to set money aside for future educational costs, but it has its own benefits and restrictions.
What Is An Educational Trust?
It is a trust fund for education. With a trust, someone has to first create one. This person is the grantor. The grantor then transfers property into a trust, and a trustee then becomes responsible for managing anything in the trust. The trustee then distributes the property in the trust to a beneficiary, who will use it for his or her education.
For example, imagine that a grandmother wishes to start an educational trust for her grandchild. The grandparent is the grantor, and the child is the beneficiary. In most cases, the child’s parents would be in control of the trust. They would be the trustees.
Questions To Consider
After choosing a trustee, there are other things you may need to consider. When will the trust become effective? Most people choose to create a trust that is active while the grantor is alive (sometimes called Living Trusts or Inter Vivos Trusts). After all, we hope to be alive when the beneficiary begins and graduates from college! However, there are also Testamentary Trusts, which essentially allows you to set up a trust upon your death.
Let’s use the example of the grandmother and her grandchild again. We know that the grandmother will be the grantor (she is setting up the trust using her assets) but she can also name herself the trustee, the person managing the trust. There are advantages and disadvantages to this approach and certainly the grantor would have to name an alternate or backup trustee. We go into more depth on this choice when we discuss Irrevocable Trusts.
Regardless of who is the trustee, the Grantor can decide how the beneficiary can use the assets of the trust. Our example grandmother can decide that her grandchild can only receive disbursements from the trust if the grandchild goes to a specific school or even a certain type of school. Concerned about the grandchild keeping their grades up? Add a provision that requires the student to remain enrolled full time and maintain a 3.0 GPA. The stipulations are yours to create. Nothing requires you to do this; it is merely an option you have.
Protect You & Your Family
As a law office, we get to hear success stories but we also hear about horror stories. Have you heard about the one where a well-meaning Grandfather dies unexpectedly passed away while his granddaughter was a sophomore in college? He had named her in his will to receive a sizeable inheritance. Overnight, the granddaughter was no longer eligible for her need- and income-based financial aid. We can plan for contingencies like this. Who wouldn’t want to utilize every legal means available to protect themselves, their assets, and the beneficiary?
By sitting down with an attorney, you can discuss the possibility of the irrevocable trust. With this type of trust, the money will be separate from the child. It will not impact the child’s financial aid application.
As an added bonus, the irrevocable trust also can serve as a means of asset protection for the grandchild. Property can remain in the trust even after the beneficiary finishes school. This prevents it from being seized by creditors, by other family members, or by former spouses after a divorce.
Law Office of Alexander Sherwood Keenan
The easiest way to create an educational trust is by contacting the Law Office of Alexander Sherwood Keenan to schedule a consultation. If you still want to learn more about other options available to you through estate planning, we offer free workshops. Call us at (845) 345-2123 to reserve your seats.