When Mr. Kato Abdul realized that it was becoming too difficult to keep track of the education needs of his 10 children, he decided that putting aside money for the specific purpose of meeting such costs would ease the increasing burden as his children grew. It was important to him that his children get a decent education without a strain on his cash flows whether he was alive or not. Using a lump sum payment, he set up an education trust. All payments made out of the trust are strictly for educational purposes. Mr. Kato does not have to worry about education expenses anymore.
An education trust provides a way for you to plan for your children’s education. Unforeseen events such as death can put your children’s education at risk. So, an education trust helps you to secure education for your children up to a desired level. A trust is a fiduciary relationship in which one party, known as a trustor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. With a trust, your beneficiaries benefit from the property transferred to the trust but they do not hold the legal title to that property.
Due to rising tuition prices, the unreliability of our education system, and other challenges, guardians and parents are increasingly considering alternatives including sending children outside the country or to international schools/universities. For guardians and parents, an education trust allows you to plan for such costs. Like any trust, an education trust is a legal arrangement. Money is put aside to secure an uninterrupted education for your children.
A trustee oversees an education trust and ensures that the trust funds are used for education purposes only. A trust deed directs how the trustee will handle funds as intended by the person who set up the trust (trustor). An education trust deed can go into details such as:
- How and when funds should be used. This might include but is not limited to: the age when beneficiaries can start accessing the funds, the type of education that beneficiaries can access, target educational institutions that beneficiaries of the trust can go to, and any conditions for the beneficiaries to access the funds.
- Whether it will be operational immediately or after the death of the trustor.
- How contributions to the trust will be made. The trustor may make a lump sum payment to the trust or opt to build the trust over time. The trustor may also invite others to contribute to the trust for example relatives, guardians, and close friends who can be sure that the funds will be used as per the trust deed.
- How assets of the trust should be invested. Assets of the trust should be invested in any way that the trustees deem appropriate as per the trust deed.
An education trust is a brilliant way of securing the education of your children to a desired level regardless of any unforeseen event. It can be created as part of your Will (testamentary trust). The trust can be a beneficiary of assets you already own such as your pension or Insurance policy. Key benefits of having an education trust include:
- Trust assets are not part of your estate so cannot be attached by creditors or other interested parties.
- Ensures uninterrupted education even with unforeseen circumstances.
- School fees can be paid directly to the school to ensure no diversion of funds.
- Flexibility to choose a contribution plan whether lump-sum payment or installment payment to build the education trust.
How secure is your children’s education? Greenthos capital can guide you through creating an education trust to take care of the education needs of your children.
*Disclosures: This material does not provide individually tailored advice. It has been prepared without regard to the individual circumstances and objectives of the person(s) who receive it
