An ‘Education Testamentary Trust’ is a great way to have a positive impact on your family that literally lasts more than a lifetime.
You have accumulated wealth and strongly believe that ‘education’ is a gift that can have a significant positive impact on someone’s life. You also appreciate that a good education does not come cheaply, even in a society where education is considered a universal right.
Rather than leaving all of your wealth to be dealt with as your heirs wish, you would like to specifically allocate a portion of your wealth for the explicit purpose of helping educate people you care for. This is where an ‘Education Testamentary Trust’ comes in.
An Education Testamentary Trust can be set up through your Will to fund all or part of the cost of primary, secondary and/or tertiary education for your children or grandchildren, (or other dependants, relatives or even friends).
How is an Education Testamentary Trust funded?
To set up such an Education Testamentary Trust, you include in your Will a direction to your Executor to hold certain income-producing assets, a fixed monetary amount, or a percentage of your Estate (the Gift), on trust to specifically fund certain defined costs (the Education Costs) of an individual, or a defined group (the Education Beneficiaries).
The trustee of the Education Testamentary Trust then holds the Gift and distributes the income and/or capital of the Education Testamentary Trust to meet the Education Costs of the Education Beneficiaries each year the trust is in existence.
The terms of an Education Testamentary Trust
The trustee of the Education Testamentary Trust is usually the person you appoint as the Executor of your Estate. However, you can also appoint one or more other people to look after the money, for example, the parents of the Education Beneficiaries.
You can define the Education Costs as broadly or narrowly as you wish – to include not only enrolment fees, but also extra-curriculum costs such as music lessons, excursions and accommodation.
An Education Testamentary Trust is usually a ‘discretionary’ trust, and the Education Beneficiaries will be identified by ‘class’ rather than by name, for example, ‘my children’ or ‘my grandchildren’. However, it is also quite common for a limit to be set per beneficiary as to the extent of Education Costs that may be funded.
The ‘capital’ you put into the Trust through your Will can either be available to fund the Education Costs, or can be ‘reserved’ (in whole or in part) to pass back into your Estate, or to other beneficiaries when the education purpose has been fulfilled.
If the class of Education Beneficiaries is other than your living children, ‘class closing’ provisions need to be included in the terms of your Will to prevent the trust from continuing for an unduly extended time.
How is an Education Testamentary Trust Taxed?
Income tax concessions apply to trusts that are set up under your Will, i.e. to ‘testamentary trusts’. In particular, children under 18 years can receive trust income (or the benefit of such income) without being subject to the ‘penalty’ top marginal rate of tax. In short, this usually means that each child can receive around $20,000 per year in income from an Education Testamentary Trust tax-free. This is perfect for funding their education!
If you would like to explore the use of an Educational Testamentary Trust in your Will, call us on 1300 654 590 or by email.
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The information contained in this post is current at the date of editing – 24 November 2023.