Providing for your children’s education

Providing for your children’s education

by Jacqui Brauman

All your children are young now, and you are doing your estate planning. Hopefully you and your spouse live to a ripe old age, but you never know when an accident could happen. So, in the event that both of you and your spouse die, you want to make sure your children are educated and that their inheritance is equal.

It would be worth considering setting aside funds, if you die, into an education trust. Here’s an example:

Russell and Carrie have three children. Their eldest, Hayley, is 10 years older than the two boys, Alex and Luke. Their estate is worth about $1,000,000. In the Wills they prepare, they leave everything to each other first. In the case that they both die they set up an education trust of $250,000, and then individual trusts for each of their children for the balance to be split evenly between them.

Lucky they did set up the education trust. They both die when Hayley is 23 years old. She has already finished her education, as Russell and Carrie paid for that whilst they were alive. It would not have been fair for their estate to be split evenly between the three children if Alex and Luke still have to pay for their education. Hayley would have received an advantage.

Instead, $250,000 is set aside in the education trust for Alex and Luke to finish their schooling. The balance of the estate is split evenly. When Alex and Luke have both finished their schooling, the balance left in the education trust gets split evenly between all three kids. That way all three children get the benefit of their education being paid for by their parents, and they also receive an even inheritance.

If you choose to set up an education trust, you could specify what sort of education fees can be paid for out of it. Whether you only want to ensure they finish private school through to their final year, or whether you also want to pay for university fees or trade school fees could also be specified. Such a trust could also have a broader scope and doesn’t have to be limited purely to education expenses.

Setting up an education trust to make sure all your children have an equal opportunity is similar to other equalisation clauses that you could use in your Will to make sure your children all get an even inheritance. If you give one child more than the others during your lifetime, you could include a hotch-pot clause to even this out. If you lend money to one child you could include the forgiveness of that debt in your Will as part of their equal share of their inheritance.

There are all these little tricks in this area of the law that we can help you with.