Trusts for Education

An educational trust enables you to leave money for a beneficiary's learning. But even if you have thought it through and realize that you are able to, and that you want to leave a loved one the funds to pursue an education, you will have to answer some other questions first. This includes questions about timing. An educational trust could be a living trust, one that you oversee for as long as you are alive. Or an educational trust can be a testamentary trust, one that only goes into effect at your passing. How you will decide this matter will depend on your own health, and how soon or how far off into the future your beneficiary will need this money.

For example, if you are a trust make near the end of his or life, and if you want to create an educational trust for a very young person, then you may want to create a testamentary trust. If you set up this type of trust, this could save you the expense of supervising and supplementing the funds. You can also evade gift taxes. If it appears that the beneficiary will need to access this money sooner rather than later, then you may need to go the way of a living trust. This means that you have to supply the trust funds immediately. It also means that you are free to put in whatever amount you choose. And this could also lead to the not-so-fun side effect of gift taxes.

The type of trust you choose will affect the other decisions you have to make, such as your choice of trustee. The trustee will be bound by the rules you create for the trust, rules on how to oversee and give out the funds for your beneficiary's education. If you decide to go with a trust that goes into effect upon your death, a testamentary trust, then you need to decide who will be the trustee and who the alternate trustee will be. With a living trust, you can choose to be the trustee. Then you have to name a successor trustee and an alternate for when you pass away. Often, the trustee is the spouse or adult child of the trust maker, or a relative of the beneficiary, someone the trust maker can rely on.

Now things can get trickier if you have more than one beneficiary in mind. You will have to assess the situation to see whether or not it calls for multiple trust funds, one trust per beneficiary. Or if you decide that all the funds will go into one trust, you have to decide such terms as whether you are going to apportion a percentage of the funds to each beneficiary, for example. Maybe each beneficiary will get left the same amount of money.

One type of trust that can leave funds in one trust for multiple beneficiaries is a "sprinkling trust". If you are going to make a sprinkling trust, one of the upshots is that you get to craft the terms of the trust to be exactly what you want them to be. Of course, that also means you will have to consider the full repercussions of any such personalized decisions, such as if they could spark family tensions down the road.

Then there are additional terms to consider when you make an educational trust. Ideally for your beneficiary, you can make it clear that the funds are for whatever type of education they need or desire. If you have specifics in mind, however, then you will have to outline whether or not the money can go toward an online education, or whether or not they can be used for trade school, for example.

Hopefully, the trust will end once your beneficiary has completed an education. But you will have to outline your wishes in case this situation does not play out, such as if the beneficiary completes education with funds still in the trust. Will the beneficiary get any leftover funds in cash once they reach a certain age? If the beneficiary decides to not pursue an education, will a different beneficiary get the funds? You should also consider what should happen to the trust if the beneficiary passes away.

As an educational trust is a complex legal matter, involving numerous details and state laws that this article cannot delve into, it is vital that you work with a probate or estate planning lawyer. You can find the answers and legal assistance you need when you search through our directory.