So, you have decided to help your grandchildren by paying for their school and university costs. That’s a very generous thing to do and of course it will help to deplete the value of your estate so that your children will pay less inheritance tax.
But did you know that with a little more thought and planning you can also help your children with their own inheritance tax planning without affecting the original intention of fee provision and personal estate depletion.
Certain types of trust are available which if used correctly, collect the school fees from the grandparents and allow loans to the parents at no interest, in-order for them to pay the grandchildren’s fees.
The effect of such planning creates a debt on the parents’ estate which can be included when calculating their own liability to inheritance tax when the time comes.
A simple calculation of funding using ‘excess’ income by the grandparents could also negate inheritance tax immediately on those monies.
Of course, the funds committed to the trust can be used for any purpose relevant to the grandchildren’s welfare, with the trustees’ permission.
The trustees are usually members of the family which avoids the additional expense of professional trustees and their ensuing administration costs.