Case # 2:      Educational Trust For Seven Grandchildren

Lester and Karin H., of Ocean Ridge, Florida have seven grandchildren. They desire a very flexible plan that will also encourage their grandchildren to be diligent in pursuing their college education.

Lester and Karin hold a fairly substantial block of appreciated stock. A trust planner, from nearby Allentown, suggests they make transfers of stock each year for four years and then use the charitable deduction from the gift plan to reduce their other income. They plan to transfer stock valued at $200,000 in year one, $180,000 in year two, $160,000 in year three and $140,000 in year four.

They also note that the grandchildren are currently age four to eleven and will not need payouts for a period of eight years. At that time, two students will be in college. However, by trust years twelve or thirteen, there may be three or more at one time in college. In addition, they want the trustee to have the discretion to make distributions to the students who are making satisfactory progress in college.

This advanced education unitrust achieves all of their objectives. It is permissible to make additions to the unitrust in years two, three and four. The annual exclusions will be sufficient to cover distributions to any student in a given year, particularly since they are creating the trust with joint property and thus have two exclusions each year per student.

The bypass of capital gain, income tax savings and the bracket benefit are very substantial. Their total tax savings are over $400,000. In addition, over $1.1 million after tax is available for the students. All seven students will be able to attend very fine colleges and even graduate and professional schools with this level of funding.

Finally, after the term of twenty years is completed, over $1 million will be distributed to a charity.