By Kimberly Napolitano
Backpacks are purchased, new shoes abound, and alarm clocks are ringing early across the nation as we celebrate the start of another school year. Some of us complain about budget cut-backs in our public schools, others of us complain about the rising cost of private school tuition. Either way, we realize that raising the next generation is an expensive task.
Then that that lurking fear comes back about how our children are going to afford to go to college. Add to this angst that the University of California system, once upon a time a great deal, now budgets total cost for California residents at or above $30,000/year, and parents can really start to panic.
Savings for college is essential, but so is proper estate planning with regard to the education of your children. Your living trust should provide details on how you intend to pay for your children’s education. Or, very possibly, what you think your children should pay for. The key is to use your living trust to instruct those that survive you how you want to deal with the costs of educating your children.
I’m paying for my kids’ college
How very generous of you. Now, let’s discuss what and how. If you have multiple children, what will happen if one goes to a community college and the other gets no financial aid but enrolls at Harvard? Should the community college student get a later distribution for the expenses saved in going to a cheaper school? And what about beauty school or a technical school: is this a “college” expense you would pay for? Are you paying for grad school? How about a year off and a round-the-world plane ticket?
By creating a living trust with specific provisions for the education of your children, you can detail how your money should be divided among multiple children and what type of expenses you are going to pay for.
My kids can take out loans – like I did
Hopefully your children will learn to appreciate the money spent on their education. But beware, your kids are likely going to depend on financial aid and are very likely to need to take loans. The U.S. Department of Education reported that for 2009-10, 53 percent of first-time, full-time undergraduates took loans to pay for their education, up from 51 percent just a year earlier.
The problem is that these aid packages usually require a co-signor or guarantor on the loans. If, we, as parents are not alive at the time these tuition payments must be made, our kids could be left with few options.
Again, your living trust can help your children by making set distributions on a time-frame that agrees with your personal philosophical decisions. Whether you give the kids some money at 18 or wait until they are 30, you can let your living trust replicate the financial decisions you would make if were alive at the time the kids head off to college.
So, after the homework is completed and lunches are made…
Take a look at your current trust to make sure it agrees with your current philosophy on paying for your child’s education. If your kids are in private elementary, middle or high school now, does your trust provide for ongoing payments? Does your trust reflect your current wishes for college and graduate studies?
If you don’t yet have a living trust, think seriously about your current situation: your children will receive any inheritance when they turn 18 and there are no rules about how the money is spent. Consider whether you want to create a trust to provide some structure to their distributions before and after they turn 18, including a framework to pay for their education.