Personal Finance: Ask the Experts

Get advice on money matters from The Bee's Claudia Buck and a panel of local experts

May 28, 2013
How can we use our trust to help our grandchildren pay off their student loans?

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?

F., Rocklin

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.

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Meet Our Financial Experts

Claudia Buck

Claudia Buck is The Sacramento Bee's personal finance columnist. Read all her columns here. Contact her at

Terri Carpenter

Terri Carpenter offers advice on job hunting, retraining and career counseling. Carpenter works at Sacramento Works Inc., the career and job training arm of the Sacramento Employment and Training Agency (SETA). With 15 years in the field, she has hands-on experience with everyone from first-time job seekers to career professionals seeking advice after a layoff or looking for a mid-career change. Ask her a question.

Carlena Tapella

Carlena Tapella is a partner in the law firm of Webb & Tapella Law Corp. in Sacramento. The firm specializes in estate planning and probate, such as estates, trusts, conservatorships and litigation. She is a past president of the Sacramento County Bar Association's Estate Planning & Probate Section. Ask her a question.

Kimberly Foss

Kimberly Foss, certified financial planner, is the founder of Empyrion Wealth Management in Roseville. With nearly 30 years in the financial industry, her clients include women in transition, small business owners, retirees and "pre-retirees." Ask her a question.

Jesse Weller

Gregory Burke, a CPA and tax expert with John Waddell & Co. in Sacramento since 1984, worked as an IRS tax auditor for six years. He’s a past chairman of the California Society of CPAs. Ask him a question.

Daniel Tahara

Daniel Tahara takes your questions about California taxes. Tahara, a spokesman for the state Franchise Tax Board, has 10 years of experience as a tax auditor. Ask him a question.

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