One of the many benefits to being a grandparent is that you get to pick and choose which expenses you wish to help with and how much you wish to contribute – if at all – to the care and maintenance of your grandchildren. Most of the time, grandparents are who you turn to for the “extras,” which allows grandparents to spoil the grandkids. One common expense that many grandparents choose to help with is the high cost of a college education. If you are planning to contribute to your grandchildren’s college expenses, the Waukegan living trust attorneys explain why you may wish to consider using a living trust to facilitate your gift.
Options for Gifting
As with most gifts, there is more than one way to pay for your grandchild’s college expenses. You can, of course, simply wait until your grandchild is in college and pay the bills outright. Among the many disadvantages of using this method is the fact that there is no guarantee that you will be here when your grandchild enters college. Even if you are, the logistics of pouring through monthly bills for housing, tuition, books, food, and other related expenses and then arranging to pay them can be cumbersome. You could also gift the funds to your grandchild in your Last Will and Testament; however, that presents the opposite problem. If you are still alive when your child starts college a gift in your Will does not good. In addition, a gift made in your Will becomes the sole property of the beneficiary to do with as he/she chooses once the gift is made, meaning your grandchild is in no way obligated to use the funds for education expenses. For many grandparents, a living trust is the best method to use if the goal is to pay for college expenses.
What Is a Living Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries. If the trust is a testamentary trust, it means the trust will not activate until the Settlor’s death. If the trust is a living trust, the trust becomes active as soon as all formalities of creation are in place. Living trusts can be further divided into revocable and irrevocable living trusts.
Why Is a Living Trust a Better Choice for Paying College Expenses?
A living trust is an excellent estate planning tool if your goal is to gift assets sufficient to cover the college expenses of your grandchild, or grandchildren. Just a few of the reasons why include:
- You choose the Trustee. The Trustee is responsible for managing and investing the trust assets as well as administering the trust. As the Settlor, you appoint the Trustee which means you decide who will protect the trust assets and handle the distribution of those assets when the time comes.
- You control how the assets are used. Unlike gifts made in a Will, you maintain a significant degree of control over how the assets in a trust are used through the trust terms you create. In this case, those terms can require the assets only be used for college expenses.
- Other family members can contribute. Often, more than one family member wishes to contribute to the same overall cause. A living trust allows multiple family members to contribute while only needing to create and administer one trust.
- There may be tax benefits. If tax avoidance is a concern of yours within your estate plan, you may also gain tax benefits out of the trust you create. For example, you could make use of the yearly exemption that allows you to make gifts valued at up to the current limit ($15,000 as of 2019) to as many beneficiaries as you wish each year tax-free. Gifts you make using the exclusion do not count toward your lifetime exemption for federal gift and estate tax purposes
Contact Waukegan Living Trust Attorneys
Please join us for an upcoming FREE estate planning seminar. If you have additional questions or concerns about using a living trust to help pay for your grandchildren’s college expenses, contact the experienced Waukegan living trust attorneys at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.