The education of your wards is as key as any egg-nest you may have accumulated for other purposes and a viable tool to use in securing your children’s education is the Education Trust. An Education Trust provides a tax-efficient way to ring fence your Estate, and by extension your wealth for inheritance planning purposes.
An Education Trust set up essentially for the education of children is known as a Children Education Trust.
How it Works
A Children Educational Trust (CET), is specific on how funds should be utilised. The Settlor (initiator of the Trust) through the Trust Deed, names the Trustee and Beneficiaries and states how and when funds are to be disbursed.
The Trust becomes operational immediately through the transfer of assets, however, the Settlor can decide that disbursement of tuition and other education-related expenses be held off till a later date. This would principally arise where the Settlor desires to pay fees from current income, while building the Trust fund for later use (e.g. fees for secondary or tertiary education). When the Trust becomes operational, the Trustee controls the Trust assets and pays the Beneficiary’s education – according to the details in the Trust Deed.
Some CET come with the additional benefit of a Trust Protector who ensures that the Trust runs seamlessly in the event that the Settlor becomes incapacitated or unable to play his/her role. While the Trust Protector can make contributions to the Trust arrangement, he/she cannot terminate or revoke the Trust.
Importantly too, the CET as an Estate Planning instrument does not pass through probate unlike other competing education products available. This means that it avoids the 10% Estate tax, which is payable on non-trust products.
- You determine the timing and quantum of your contributions (when and how much you want) as no scheduled deposit is required
- A CET has the capacity to earn a return on investment (subject to product and market vagaries)
- There are no restrictions on age or number of Beneficiaries that may be specified
- Beneficiary substitution and/or addition is allowed in the Trust arrangement
- You can make contributions by direct transfer
- Life insurance for the Settlor is available (if you sign-up and pay premium for that option) to increase the value of the Trust fund
- Any fund not used for the intended purpose will revert to the Settlor or Beneficiaries to the Trust
- It helps to ring fence your wealth from third parties and creditors
Factors to Consider When Setting Up an Education Trust
When you set up an Education Trust, you decide the terms of the Trust – including:
- Who controls the Trust
- How the Trust property will be used
- Who will benefit from the Trust
We will expound on these in next week’s publication – look out for it on this page. If you have questions or require support regarding your child or ward’s education trust, we will be happy to help. Simply call 0805 4000 299 or email firstname.lastname@example.org. You may also connect with us on Twitter @fbnquest, Facebook and LinkedIn – fbnquest.
For more insights on Estate Planning, Trusts, Wills, Executorship and Estate Administration, tune in to the Legacy Series on Classic 97.3 FM Lagos by 7pm on Mondays or Cool 96.9FM Abuja, by 8.30am on Tuesdays.
Visit www.fbnquest.com/legacyseries for more information.