What a Personal Property Memorandum Can Do for Your Will or Trust

Avoid family feuds over heirlooms. Family members often end up arguing over mom or dad’s favorite items when that parent dies. Arguments can take place over things like a coffee mug, a piece of jewelry or a painting. These types of arguments can be eliminated by filling out a personal property memorandum and keeping it with your will or trust.

A personal property memorandum is designed to cover who should receive items owned that don’t have an official title record. Personal property includes furniture, jewelry, art, and other collections, as well as household items like china and silverware. Personal property memoranda may not include real estate or business interests, money and bank accounts, stocks or bonds, copyrights, and IOUs.

When writing your memorandum, it is best to keep things simple. Personal property memoranda generally resemble a list of items with the attached names of the inheritors. It can be handwritten or typed but should always be signed and dated.

All items should contain sufficient detail so that argument and confusion can be avoided. Complete contact information including address, phone, email, and a backup contact if possible should be included. Do not include items that you have already explicitly left in your will or trust.

The beauty of a separate list of personal items and their planned distribution is that if you later decide to change who receives what, you simply update your current list, or replace the list altogether. You can destroy an old record or maintain signature and dates on each of your personal property memoranda so that it is easy to identify your most current set of wishes.

A personal property memorandum for your tangible personal effects is a simple way to address how you want your personal property to be distributed. We would be happy to help you create a legal personal property memorandum along with any other estate planning documents you may need. Please do not hesitate to contact our office by calling us at (405) 241-5994.


Saving for School: Planning for Your Family’s Education

According to the National Center for Education Statistics, in the 2018–2019 academic year, the average tuition and fees for a public four-year institution were $9,200; $35,800 for a private nonprofit four-year institution; $3,700 for a public two-year institution; and $18,400 for a private nonprofit two-year institution. If postsecondary education is in your family’s future, including any of the following tools in your estate plan can be an excellent way to help provide for education needs.

Health and Education Exclusion Trust

A health and education exclusion trust (HEET) is an irrevocable trust tailored to help you avoid paying gift and generation-skipping transfer (GST) taxes on tuition and medical care expenses for individuals two or more generations younger than you (grandchildren, great-grandchildren, etc.). Tuition payments made from a HEET directly to an educational institution on behalf of one of these beneficiaries are not subject to gift tax. These payments, if made on behalf of a “skip person” from a non–GST tax-exempt trust are not subject to the GST tax. However, in order to qualify for these benefits, at least one trust beneficiary must be a charitable organization with a significant interest. This can be a great option if you are charitably inclined and want to provide education assistance for multiple generations.

Irrevocable Gifting Trust

Using either the annual gift tax exclusion or lifetime gift tax exemption, an irrevocable gifting trust holds and invests property for your chosen beneficiaries for a variety of purposes, not just education. If you want to use the annual gift tax exclusion to shelter gifts to the trust for gift tax purposes, you will need to include a Crummey power. A Crummey power is a technique that allows your beneficiary to receive a gift that would not usually be eligible for gift tax exclusion but makes the gift eligible. To accomplish this, after each annual gift is made, your beneficiary must be given an opportunity to withdraw the amount that was gifted. However, the beneficiary will often leave the money in the trust to ensure that you will keep making the annual gifts according to the original plan. You can stop making gifts at any time.

Provision in a Revocable Living Trust

If you already have an existing revocable living trust, including a provision for the payment of your child’s or grandchild’s education expenses can be an easy way to help even if you pass away before the education is completed. Upon your passing, the money will be available to be used as you have directed. One benefit is that during your lifetime, you can change the trust provisions as often as you like. Additionally, you can determine how the money should be used. Your definition of education expenses can be as broad or as narrow as you want, and not all of the money in the trust has to be used for education expenses.

Revocable Education Trust

A revocable education trust provides substantial flexibility, as it allows you to set up a trust, act as a trustee, and make distributions for your chosen beneficiary’s education, but it can be revoked or revised if the funds are needed for other purposes or if the beneficiary does not attend college. It will not provide the tax benefits of other trusts or education plans, but it may be a better option if flexibility is a priority.

529 Plans

A 529 plan is a savings plan that provides tax advantages designed to encourage people to save for their child’s or grandchild’s future education costs. There are two types of 529 plans: prepaid tuition plans and education savings plans.

Prepaid Tuition Plan

A prepaid tuition plan allows you to purchase units or credits for your beneficiary’s future tuition and mandatory fees in advance at the current prices, helping to avoid paying the higher costs that likely will be charged in the future. These plans are usually available only for public and in-state colleges, cannot be used for room and board, and cannot be used to prepay tuition for elementary and secondary schools. If the beneficiary later decides to attend a private college or university, prepaid funds can be applied to tuition at most private postsecondary institutions.

Education Savings Plan

An education savings plan enables you to open investment accounts to save for any qualified higher education expenses. The funds can be used not only for tuition and fees, but also for college expenses such as room and board, computers, and software. This account can also be used to pay for education expenses at some international institutions. In addition, up to $10,000 can be used for elementary and secondary school tuition.

Coverdell Education Savings Account

A Coverdell education savings account (ESA) is a savings account used to fund qualified education expenses. Although the contributions are not deductible, the distributions and growth are tax-free as long as the funds are used for qualified education expenses. Unlike some other options, the Coverdell ESA can be used toward qualified education expenses for elementary and secondary education without a monetary cap. In contrast to a 529 plan, this program has an income limit (adjusted gross income must be less than $110,000, or $220,000 for those filing a joint return), as well as a contribution maximum ($2,000 per year per beneficiary).

Uniform Transfers to Minors Act and Uniform Gifts to Minors Act Accounts

The Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are types of trusts whereby a custodian manages money and property on behalf of the minor owner. However, unlike other types of trusts, UTMA and UGMA accounts do not require that any trust documents be prepared or that a court appoint a trustee. All of the required trust instructions are spelled out in the state’s statute. Until the minor reaches the age of majority (eighteen or twenty-one depending on the statute), the custodian must manage and use the funds for the benefit of the minor, which can include the payment of education expenses. However, once the owner reaches the age of majority, the money is turned over to the owner, who can choose how it is managed and spent.

Impact on Financial Aid

It is important to note that setting aside money for a child’s or grandchild’s education expenses may impact the ability to qualify for need-based financial aid. The identity of the account owner impacts whether the account must be disclosed on the Free Application for Federal Student Aid (FAFSA) and the weight it will be given in the need-based calculation. Additionally, most types of trusts must be reported on the FAFSA as an asset of the beneficiary.

We Are Here to Help

Working together with your financial team, we can craft a plan that accomplishes all of your family’s education goals and sets them up for the best possible future. We are available to meet in person or by video conference—please let us know what is most convenient.

Saving for College: What If There Is Money Left Over?

Setting money aside for your children’s or grandchildren’s education is a great way to provide for their future. However, it is possible that not all of the money you have set aside will be used for college expenses. For example, your child may receive a large scholarship and will not need to use all the money you have saved, or your grandchild may choose a trade school that is less costly than you expected. Alternatively, your child or grandchild may decide to join the workforce immediately upon graduation. When confronted with this scenario, you may wonder what you can do with the excess money. The answer depends on how the money is managed.

Trusts Created by You

Health education exclusion trust. The purpose of a health education exclusion trust is to provide for the education and medical needs of multiple beneficiaries over more than one generation (typically grandchildren and great-grandchildren), and if money is left over because one beneficiary did not need all of it, it will not affect the operation of the trust. For example, a different beneficiary may decide to go to medical school and thus utilize the perceived excess.

Irrevocable gifting trust. If you work with an experienced estate planning attorney when creating an irrevocable gifting trust, your attorney can help you include instructions for how the trustee should handle the remaining funds if the beneficiaries do not need them. You are free to include instructions in the trust document that allow the beneficiary to use the remaining funds to purchase a house, start a business, or save as a nest egg for retirement. Alternatively, you could name a different beneficiary (e.g., a family member, friend, or charity) to receive the remaining amount.

Revocable living trust. Similarly, if you choose to add a provision to your existing revocable living trust to provide for the education expenses of your child or grandchild upon your death, you can include instructions for what will happen to the remaining money if the entire amount is not needed. Additionally, with a revocable trust, you can change your mind and draft additional contingencies into your plan until your death or incapacity.

Revocable education trust. Like a revocable living trust, a revocable education trust can also be changed up until your death or incapacity. Because the funds held by the trust will likely be distributed during your lifetime, you can amend or revoke the trust if your or the beneficiary’s life circumstances change. You can add or remove beneficiaries, transfer money to or withdraw money from the trust, or create a different set of criteria for making distributions to the beneficiaries.

Accounts Created by Statute

Accounts established pursuant to a state’s Uniform Transfers to Minors Act or Uniform Gifts to Minors Act are set up to hold money and property on behalf of a minor. They impose no education-specific requirements for use of the money, and the only generally understood prohibition is that the money should not be used for expenses that are normally deemed to be parental obligations (e.g., food, clothing, shelter, etc.). Once the minor reaches the age of majority (eighteen or twenty-one depending on the state), the money is turned over to the owner to use freely. If the minor passes away with funds remaining in the account, it will be distributed according to the state’s intestate statute.

State or Federal Education Plans

Internal Revenue Service Publication 970 sets forth similar regulations regarding 529 plans and Coverdell education savings accounts (ESAs). The money held in 529 plans and Coverdell ESAs can be rolled over from one account to another of the same type, and the designated beneficiary on the account can be changed to a member of the beneficiary’s family. A rollover can be for the benefit of the same beneficiary or another member of the beneficiary’s family (e.g., a spouse, child, stepchild, sibling, parent, etc.) who is under age thirty. However, the age limitation does not apply if the new beneficiary is a special-needs beneficiary.

While there are no federal tax consequences for rolling over an account, it is important to check with your tax advisor regarding the state income tax consequences if you received state tax breaks for your prior contributions and are now rolling the account over to an account in a different state. If there is no one likely to use the funds for qualified education expenses, the funds can be withdrawn and used for nonqualified expenses; however, they will be subject to income tax on the investment earnings as well as a 10 percent penalty.

We Are Here to Help

There are many different options for funding your family’s education future, and what happens to any unused funds largely depends on which option you choose. We are here to assist you and your financial team in choosing the best strategy for your unique situation to ensure that your wishes are carried out. Please contact our office by calling us at (405) 241-5994 to schedule a virtual or in-person meeting.

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