Sometimes our clients come to us asking to learn more about education trust. What is an education trust? What are the advantages of this type of trust? Who should have this type of trust set up as part of their estate plan? We’ll use this short article to cover these topics.
What is an Education Trust?
In short, it’s an Irrevocable Trust that is meant for one thing: paying for a child’s education. Usually, it’s only applied to the recipient’s tuition. In other words, it wouldn’t be used to pay for room and board.
What do we mean when we say something is an Irrevocable Trust? It means the grantor isn’t able to bring the assets back under their control. When a grantor sets up any kind of Irrevocable Trust, they should only use assets that they will never need themselves again - because they’ll never have access again.
What are the Advantages of an Education Trust?
First, it gives them control over how their money will be used. If someone left an inheritance to their grandchild and there was no trust in place, the grandchild can use that money however they wanted.
For example, they might go on a big, expensive vacation… which may have been great at the time, but it will probably not have a very positive impact on the person in the long term.
Perhaps the grandchild would use the money to buy something expensive like a luxury car. Again, that’s a luxury - but it may not have a very long-lasting, positive impact on the grandchild’s life.
Education is different because it’s an investment in learning and advancing oneself. Warren Buffet once said “By far the best investment you can make is in yourself.” So, by setting up an Education Trust, you can be rest assured that your assets will go towards the best investment possible - your grandchild’s growth and development.
Help Avoid Student Loan Debt
There’s another advantage that also needs to be mentioned. Maybe your grandchild was already planning on going to college. By having an Education Trust set up, they won’t become burdened with a lot of student loan debt.
Student loan debt is seen as a crisis in our country right now. Even if someone has to declare bankruptcy, they can’t escape from student loan debt! It will follow them for the rest of their lives until they can finally pay it all off.
Your Education Trust will help ensure that this doesn’t happen to your loved one. They can finish college debt-free (or at least with less debt) and move on to advancing their career without that crushing debt.
Who Should Set Up an Education Trust?
Every person’s situation is different, so we can’t give a set of conditions that work for every person. In general, this type of Trust makes sense for people who meet two conditions:
You have loved ones interested in a higher education or will go to private grade school.
You have enough assets or income generation to live on so you won’t need to access the assets that will be placed in the Education Trust.
For more personalized advice, give us a call at 714-663-8000. We look forward to answering any questions you have on Education Trusts, or estate planning in general.