Educational Trusts:

A trust is an excellent vehicle to assure the education of children, and is a planning technique I recommend and implement frequently. It seems to become a concern in families in two common scenarios. One is the young couple simply wondering: "How will our kids get educated if we die in a common disaster?" The other typically involves grandparents who fear their children are irresponsible and that their grandchildren may get short shrift when it comes to an education.  Certainly, there are other fact patterns indicating the use of a trust for educational purposes, but those two are what I see most frequently in my practice.

Any trust is a sophisticated document and should be prepared by an attorney experienced in preparing estate planning documents. The cost of establishing such a trust will vary widely depending upon your specific location and the reputation and abilities of the attorney performing the legal work. But don't be penny wise and pound foolish when contemplating matters that affect the legal rights of you and your family!

In terms of drafting an educational trust (which I generally recommend be a separate document and not part of another trust), care needs to be addressed to how the trust will actually operate.  In other words, how, and for what purpose, will the trust funds be expended?  For example, how is education to be defined: Private high school? Community college or a 4-year degree program? State school? Elite private university? Trade school? Graduate studies and/or professional school? All of the above?  It seems that many people interested in providing for the future education of young people simply say they want the youngsters "to go to college." Certainly admirable, but what if the individual's true abilities and desires run to being a mechanic? If the trust says "funding for college," a trade school wouldn't qualify. Also, will the child being educated be entitled to distributions for things like: Books and course fees; travel to and from the school; room and board; uniforms, or other clothing considerations. Give care not to create a document which creates as many problems as it solves. A little planning can avoid conflicts and confusion in trust administration.

Another important area I have seen expressed by clients is the desire to ensure that the youngsters actually exert some effort in this process. This thought gets expressed in provisions such as a requirment that the student carry a minimum course load, maintain a minimum grade point average, be continuously enrolled, and sometimes, complete the course of study by a certain age.  I do not mean to suggest that some young people would attempt to use guaranteed educational funding to become a "professional student," but apparently, a lot of parents and grandparents feel that way.

Consideration also needs to be given to how and when the trust terminates, and what happens to any unspent trust funds. In the educational trusts in which I been involved, a common concern expressed by the grantor of the trust is an unwillingness to allow a beneficiary to "sit around, not go to college and then collect his portion of the funds" when the trust terminates. I also suggest to my clients that a dollar figure be specified below which administration of the trust is not practical, thereby compelling the trust to terminate.

Lastly, speaking of money, an educational trust can be a wonderful document, but it is of little use if it is not funded. For the young couple, purchase of life insurance naming the trust the beneficiary of the policy generally makes sense.  Given that the toughest situation would be occasioned by the death of both parents, it may make sense to explore a survivorship life insurance policy which should provide a greater death benefit at a lower cost than would two individual life policies. For mature individuals wishing to establish an educational trust fund, the funding possibilities include immediate funding through a gift, specifying a bequest in one's will, as well as life insurance.