Trusts - a great way for grandparents to help with education fees
We all want the best possible for our children and grandchildren - to give them a sound start in life. Trusts can be a great way to achieve this - enormously tax-efficient and flexible. In this blog, we’ll look at the benefits of grandparents supporting their grandchildren’s educational needs. In our next blog, we’ll examine how parents can use trusts to benefit their children in a tax-efficient way.
Paying for their education right through to university is one way to give our grandchildren a step-up in life. But, of course, paying for education isn’t cheap. However, it can be made far more affordable with effective tax-efficient Trust planning.
Impressive tax savings
There are numerous benefits of setting up trusts for school fees.
- Combined tax saving of £20,000 to £30,000 a year
- You can pay for fees in advance - this can earn you considerable discounts
- Peace of mind - you can be sure that your children and grandchildren’s education and maintenance will always be paid for
- Flexibility and safeguarding of your family assets
- You retain control of the trust
A trust for your grandchildren
You set up a trust for your grandchildren. You can put up to £325,000 into this trust - equal to the unused Inheritance Tax (IHT) threshold. This reduces your estate by £325,000, potentially saving 40% tax (£130,000).
As long as you survive seven years, your IHT threshold is reinstated. You can then put a further £325,000 into trust once that seven years have elapsed.
By creating a trust for your grandchildren, you’ll also be providing an income and/or capital that can support their needs as they grow up into adulthood.
Added benefit - income tax savings
An added benefit of this type of trust is income tax savings. The income payments from the trust will be paid net of income tax to your grandchildren. They will be able to reclaim part or all of the tax paid by the trustees via their own personal allowances. If you haven’t set up a trust and your assets remain within your estate, you may be paying school fees net of income tax, which you can’t recover. By placing your assets into trust, you’ll be making the provision of school fees much more tax efficient.
On top of this, both you and your spouse, as grandparents, can combine the amount you put in - making the maximum £650,000. This will reduce your family’s IHT liability, and you can do it every seven years.
In setting up the trust, you’re known as the ‘settlor’. But you can also be a ‘trustee’, meaning that you control and manage the funds. Usually, you would put the funds into the hands of a qualified investment manager to provide sufficient income and capital growth for your grandchildren - the beneficiaries.
Ask the expert - always
Trusts are an excellent and perfectly legitimate way to support and protect your loved-ones’ inheritance. This is our speciality. So, give yourself peace of mind. Get in touch, and we’ll answer all the questions you might have.
Contact Tim Mullock on 01234 713021.
Or email Tim.Mullock@AdeptAssetSolutions.co.uk