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Guarding Your Wealth for Senior Citizens
How to Provide a College 'Scholarship' and More for
Your Grandchildren
You can award those ‘scholarships’ and ‘grants’ -
Talk about a legacy
By Jeffrey D. Voudrie, CFP
 May 18, 2007 - Imagine what it would be like if
each one of your grandchildren earned a scholarship to pay their college
costs. Wouldn’t that be great? In a sense they can. Not only that, they
could receive grants to help them purchase their first home, start a
business and even provide additional retirement funds! Read on to find
out how.
You don’t have to rely on a government program or
the generosity of a school to provide a college ‘scholarship’ for your
children, great-grandchildren and even your great-great-grandchildren.
You don’t have to rely on special grants to help them buy a home or
start a business. And their potential retirement doesn’t have to depend
on the largesse of increasingly stingy employers.
No. You can award those ‘scholarships’ and
‘grants’. You can take steps now that may provide such funding for
generations. Imagine, your great-grandchildren growing up knowing that
if they work hard and get good grades that you will pay some or all of
their college education! Talk about a legacy.
It’s not as hard as you think. Recently, I received
a question from a reader who wanted to set up a trust that would provide
retirement assistance to future branches in his family tree.
There are several advantages to setting up a
multi-generational trust. The money can pass from generation to
generation without any estate tax. The money is protected from divorce,
lawsuits and the claims of creditors. And you get to set the terms of
how the money is administered and distributed. That means the trust can
provide incentives related to things you find important.
For example, there can be educational assistance
based on grades. There can be financial assistance for starting a
business, for doing charitable work or for saving for retirement. The
trust can own homes—even vacation homes. The possibilities are endless.
You determine what they are and how they will function.
An irrevocable trust will typically be used in
these situations. Once you set it up, the terms of the trust can’t be
changed. So it’s important that you thoroughly think it through before
signing it. Just because the terms can’t be changed doesn’t mean these
trusts can’t be flexible. You can build in flexibility.
For instance, the terms can state that the trustees
are able to determine the conditions upon which educational funding will
be provided based on the current tax, legal and economic environment.
They can take into account the financial wherewithal of the individual
and their parents. You don’t have to say, ‘If this, then that’. Instead
you can set guidelines for the trustees to follow. Of course, you also
specify how trustees are determined and under what circumstances they
can be changed. Since the trust is irrevocable, the more flexibility you
can leave the trustees, the better.
Once the trust document is prepared and signed,
it’s time to move money into it. Since the trust is seen as a separate
legal entity, money and/or assets are gifted to it.
Check with state
laws to see if gifts above a certain amount are subject to tax. At the
Federal level, you can gift $12,000 a year per person without tax
consequences. There is also a $1 million Federal lifetime exemption, so
$1 million if you’re single, or $2 million if you’re married, can be
transferred into the trust all at once without incurring Federal Gift
Tax.
There are many ways that trust money can be
invested. It can own real estate, insurance, annuities, stocks, bonds
and mutual funds. In fact, what it can own is only limited by what the
person setting up the trust decides.
Many suggest annuity or other tax-deferred products
so the trust doesn’t have to pay taxes on the income each year. I don’t
agree. Using annuities only pushes the taxes down the road, causing them
to snowball. They are still subject to tax when withdrawn and will be
taxed at ordinary income tax rates.
Stocks, bonds and real estate can be managed in
such a way that they generate dividends and capital gains. These are
taxed at a much lower rate and provide greater control and flexibility.
Life insurance on those setting up the trust and/or other family members
can be used to continue to replenish the trust from one generation to
the next.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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