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We see an increasing number of grandparents assisting or fully funding these fees. The death of trusts for grandchildren has been widely reported over recent years but as quoted by Mark Twain, reports of their death may have been exaggerated. Certainly the tax treatment of trusts has become more onerous but for each grandparent wishing to set aside a maximum of say £100,000 which will be “used up” by the time the grandchild reaches the age of 18, tax treatment may not be as significant as press reports would have us believe.

The creation of a discretionary trust for the benefit of grandchildren can still be a useful tool.   With the selection of appropriate trustees grandparents can have the assurance that this pot of money is ring fenced and can only be used for certain purposes and not by the parents of the grandchildren.

Treating your grandchildren fairly (rather than equally) may also be an issue, as it is possible that some of your grandchildren may need your support more than others. On the other side of the family there maybe other sets of grandparents who are willing to assist with school fees and you might want to take this into account so wealth is shared fairly.  By using independent trustees you can ensure fairness is taken into account when making decisions about fees in the future.

Grandparents are often concerned that without their continuing financial assistance a grandchild’s school fees could not be paid without some element of hardship on their children. Whilst grandparents may be happy to set up direct payments to the schools during their lifetime consideration should also be given to how payments can continue to be made in the event of their death.

Our advice to grandparents will always focus initially on their own future financial needs. With the death of a spouse the household income may reduce – particularly if payments from an occupational scheme reduce by 50% to the surviving spouse. However in the event of the death of both grandparents then consideration may be given to making a further lump sum payment into the trust for their grandchildren rather than leaving all of the assets to their children (the parents).

So as the new school term gets underway it is perhaps time for grandparents to do their own homework and make an appointment with a solicitor.

Sarah Nadin is a specialist trust solicitor and member of STEP. If you would like advice about setting up a trust or about how to select a trustee then give Sarah a call on 01246 560 560.