How to Draft an Educational Clause Into a Revocable Trust

A revocable trust is an estate planning tool that lets you define what happens with your money or assets once they are in the trust. Usually, you retain control over the trust while you are alive, and a trustee takes it over when you die. While you can set a wide number of rules for your trust, one provision you might choose to include is an educational clause that helps to ensure that some of the funds you leave behind are used to pay for a beneficiary's college or other education.

Education Clauses

An education clause specifies that money from the trust can be used for education. It could be very general, simply saying that the money can be used for educational purposes for certain parties. The trust can also be specific, saying, for instance, that up to $25,000 per year can be used for payment of undergraduate or graduate tuition and fees provided that the student maintains at least a 3.0 grade point average. Ultimately, the decision of how to word the education clause is between the original trustor and his attorney.

Trustee Discretion

Another way to write educational funding into a trust is to give discretion to the trustee. For instance, a trust could be written with instructions that simply allow the trustee to use the funds for the support of the trustor's children. It's reasonable to expect that the trustee would use the money to pay for educational expenses, but she would also have the ability to use them for other purposes, such as to treat a child that develops a medical condition.

Spendthrift Clauses

Instead of only earmarking money for education, trusts can also be set up with "spendthrift" clauses. A spendthrift clause allows the beneficiary to use the trust for certain expenses only. This way, for instance, the trust can be set up to pay rent and utility bills and tuition, but nothing else. These clauses are useful with heirs who might not be financially responsible but also might not be able to benefit from an education clause.

Irrevocable Trusts and Education

Another way to fund your children's education is to use an irrevocable trust. With an irrevocable trust, you use a portion of your gift tax exclusion or credit when you fund it, but money comes out of it shielded from estate taxes. One of the keys to keeping an irrevocable trust tax free for your recipients is to specify how it can be used. While the Internal Revenue Service offers a few different ways that a trust can be used, specifically earmarking it to be used for a child's education is one of the ways to get distributions favorably treated.

Beyond Education

However an education clause is written, a termination provision is another useful part of a trust. For instance, if a trust contains money for education and every beneficiary receives a scholarship and doesn't need the money, the trust language will have to allow some way for trust money to be withdrawn. As with education clauses, termination clauses can also be drafted however the original trustor wants. He could specify that the funds are distributed when the beneficiaries reach a certain age or complete their college degrees or even that the trust is to be carried forward for grandchildren. Since private noncharitable trusts are generally legally intended to eventually end, this language could be a necessity.

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About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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