The cost of Private education for grandchildren
(To discuss trusts for private education for grandchildren, contact us.) On with Duncan Lawries PR:
It now costs in excess of £500,000 to send three children to private school, according to latest figures from Duncan Lawrie Private Bank. This will involve a significant financial sacrifice, even for a wealthy family. One way to help pay the bill will be for grandparents to make a contribution to private education for grandchildren, which can be done by setting up a discretionary trust. This has the double benefit of efficient inheritance tax planning, whilst at the same time funding the grandchildren’s education.
Paul Barry, a Chartered Financial Planner at Duncan Lawrie Private Bank, commented on private education for grandchildren:
“School fees will have to be paid for 10 years before all three children complete their education, assuming they start at age eight. At its peak, with all the children at school at the same time, the cost will hit £60,458* in one year alone. The demand on the parents’ finances is therefore considerable, which is why grandparents often offer to help out, but all of this requires very careful tax planning.”
Grandparents can individually offset the maximum amount of £325,000 permitted under the inheritance tax threshold, known as the nil rate band. This means a discretionary trust set up to help with private education for grandchildren will not have an immediate tax bill. Assuming the grandparents live for a further seven years after the gift is made, the capital is outside their estate for inheritance tax purposes.
Even though the money is in a trust, the grandparents retain control of it, including making distributions of capital directly from the trust to contribute towards the fees for private education for grandchildren in the most tax efficient way. Trustees can also invest and manage the underlying trust fund using various asset classes such as cash, fixed interest and equities, timing dividends and interest receipts to match fee payments.
Paul Barry adds:
“Creating a discretionary trust, along with long term financial planning, enables us at Duncan Lawrie Private Bank to tailor solutions according to individual client needs. For instance, we can point out that flexible trust rules allow payments for grandchildren who have not yet been born, or cover any future change in circumstances such as divorce.”
*Figures are based on UK averages from the 2012 census from the Independent Schools Council, assuming three children attending day school between the ages of 8 – 18 and school fees rising annually at a rate of 5%.
Stephen Pett of TPD Ltd Legacy Trusts (that’s us on this site) added:
“The Home Protection Trust is just a variant of a lifetime trust specifically designed for a home to go into. It is great for funding private education for grandchildren – but not until you have died! If you are looking to finance private eduction for grandchildren during your lifetime, we use a different (and cheaper!) variation. Just let us know that you are looking for your trust to provide help with private education for grandchildren.