For parents, children’s health and well being are always top-of-mind. This is particularly true in the unlikely, but possible, case of a parent’s passing before the children reach adulthood. Nowadays, adulthood doesn’t simply begin when children hit 18. There is a transitionary period near the college years that can add a great deal to a child’s financial burdens.
While it can be difficult to think about, it’s essential for parents to consider how much to leave their children during these years. This difficult decision is not only manageable but can also lay the groundwork for a bright and protected future for the children involved.
More than Just Tuition
One size unfortunately does not fit all in regards to where your children decide to go to college. Obviously the costs of attending a private school will be greater than those of a state university or community college. There is also the chance that undergraduate studies may not be the end of the road. Being mindful of continuing education, such as a master’s degree, law school, or medical school must also be considered.
Today, the cost of college is not set in stone and estimated average tuition rates often are amplified by additional expenses such as textbooks, room and board, and student activity fees, all of which can cost hundreds or even thousands of dollars per semester. Those fees also don’t include the cost of educational programs like a study abroad or costs of living during unpaid summer internships. It is extraordinarily important to consider everything your children will be faced with during these years, not just tuition, when beginning to plan for a college trust.
Trusts that Motivate
Many parents fear that putting too much money in a trust for the college years can ultimately create a bigger monster: a child who is under motivated or simply attempting to “cash out.” This legitimate concern can be countermanded with incentive trusts, which are designed to keep a child both motivated and ambitious.
They can also be personalized and timed to trigger based on specific life events. For example, Forbes points to a popular type of incentive trust based on career success, matching distribution to salary. A child who graduates with a medical degree will receive more from the trust than a child who does not graduate or takes a lower-paying job.
Other incentives can include graduating high school, enrolling in a four-year university-level program, or even obtaining a college degree with a specific GPA.
How Much is Enough?
When discussing a child’s inheritance during the college years, it can be difficult to determine just how much money to set aside for something that might not happen for several years. The best way to determine how much is enough is by looking at the ranges of tuition for community colleges to private universities and factoring in non-tuition expenditures in both situations over a four year time period. This will give you a range of projections, then you can factor in inflation to know what you would need based on your children’s current ages. The next step would be to know how much to put in that college bucket today and what the forecasted growth rate would be to meet the future college needs.
After considering the various scenarios above and having the conversation with your trust officer about your concerns, you should feel confident that your child’s educational needs will be well taken care of and that they are on the path to a successful future.
About Caldwell Trust Company
Caldwell Trust Company is an independent trust company with offices in Venice and Sarasota, Florida. Established in 1993, the firm currently manages over $800 million in assets for clients throughout the United States. The company offers a full range of fiduciary services to individuals, including services as trustee, custodian, investment adviser, financial manager and personal representative. Additionally, Caldwell manages 401(k) and 403(b) qualified retirement plans for employers.
