George and Anita were in their mid-60’s, retired and enjoying their time as grandparents. While reviewing their taxable estate with their Bordeaux Wealth Advisors (BWA), George noted the rising costs of both secondary and college education that his grandchildren faced. As a lifelong advocate for education, he wanted to ensure that his grandchildren would have access to the quality education they needed to be successful in their personal and professional lives – without the burden of exorbitant student debt. But with increasing tuition and fees, how could he safeguard their future education and do so in a tax-effective manner?
The BWA advisor introduced George and Anita to the idea of a Health and Education Exclusion Trust (“HEET”) and explained that this type of dynasty trust is established to pay medical and tuition expenses of persons two or more generations younger than the trust creator, i.e. grandchildren. Utilizing a HEET, George and Anita could provide for the coverage of medical and education costs for their grandchildren – with the contributions free of any gift tax. Moreover, the trust funds would be excluded from George and Anita’s estate, providing an added tax benefit for them personally.
Working with Bordeaux Wealth Advisors, the couple setup a HEET trust for their current and future grandchildren with an initial trust contribution of $1 million. With BWA’s help, George and Anita were able to forecast the expected costs of their growing family, with BWA investing the portfolio to support the future funding ability for all current and expected grandchildren. Today they are on track to fully fund the expected education costs, with some left over to gift to a charity of their choice, another appealing feature of the HEET.
The HEET solution allowed George and Anita to uphold their personal values for education while simultaneously reducing their taxable estate and helping their grandchildren. They especially enjoyed receiving letters, thank you notes, and hearing from the grandkids directly about their schooling and how the funding was helping them prosper.
