We have four grandchildren who are saddled with substantial college loans which they are paying off at the present time. My wife and I want to leave monies for each of them, through our revocable trust, to alleviate their education burdens.
What is the best way to make sure that the funds are used for the specific purpose of making loan payments in full? How do we amend our trust to facilitate this arrangement?
Finally, what are your recommendations to eliminate animosity, which may occur if our married children who don't have kids feel they are being cheated out of a percentage of the monies designated for the college loan payments?
A: If you want to ensure that the funds you leave to each of your grandchildren is used for the specific purpose designated (to pay off any balance owing on their student loans), then the trust must specifically direct your trustee to apply the funds for that purpose and no other.
I do not know your age, but the way your question is framed, I am assuming that you intend this gift to be made after you and your wife have both died. If that is the case, there are other issues to take into consideration, such as whether there will be sufficient funds to pay off the loans. If either you or your wife have substantial medical or long-term care expenses, there may not be funds available to satisfy all or a portion of the loans.
Also, what if one of your grandchildren has been frugal and made significant payments towards his or her loan, while another pays only the minimum amount owed each month?
Another possible scenario is that one grandchild may have a substantial amount owing because he or she obtained an advanced degree, while another may owe a smaller amount because he or she obtained an associate degree or a bachelor's degree. Do you want to treat them equally or do you want the loans to be repaid, regardless of whether one grandchild owes $100,000 and another owes only $10,000?
You should consider all of these factors so that, when you amend the trust, the directions to your trustee are very clear. Your estate planning attorney can prepare the amendment to ensure that your wishes are clear and your intentions carried out.
I think the key to at least reducing any animosity that your childless children may feel is to be straightforward about your reasons for wanting to pay off your grandchildren's student loans. It may be that you and your wife believe that the gift of education is worthwhile and that your intent with making this gift is not to put cash in the pockets of your grandchildren to spend as they might determine.
It would be important to assure your childless children that this gift is not intended to be a punishment for being childless. Be prepared, however, that they may see it as such, but that is something over which you have no control. If you feel it is necessary to soothe any possible hurt feelings, you could give your childless children a specific bequest of cash or property to offset the gift of a loan payoff that you are making to your grandchildren.
If finances allow, you might also consider making gifts to your grandchildren now in the form of loan payments that you make directly. You and your wife can each make an annual non-taxable gift of up to $14,000 to each of your grandchildren (i.e., $28,000 from both of you). It would certainly ease your grandchildren's financial burden and, if you feel it is appropriate, you could also make a similar gift to your childless children.