“Grandpa, Can I Borrow Some Money for College?”

One way for grandparents to help their grandchildren with college expenses while assisting charity is through a term-of-years charitable remainder trust with sprinkle powers.  The trustee can be given the power to pay income in varying amounts to different beneficiaries within the stated class, according to their changing needs [Code §674(c)].  A term-of-years charitable remainder trust can last up to 20 years and is more likely to satisfy the 10% remainder requirement that might otherwise cause a problem for young beneficiaries of lifetime trusts, even at higher payout rates.  For instance, a 20-year 10% charitable remainder unitrust with quarterly payments and a 1.8% §7520 rate easily meets the 10% remainder test, providing more for grandchildren during their college years.  However, an independent trustee is required to avoid the grantor trust rules and disqualification of the remainder trust [Code §§671-678].


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