Direct tuition payments: An attractive option for funding your grandchild’s college education

It’s no secret that the cost of a college education continues to soar. If you’d like to help fund your grandchild’s higher education, a simple but effective technique is to make tuition payments on behalf of him or her. So long as you make the payments directly to the college, they avoid gift and generation-skipping transfer (GST) tax without using up any of your gift or GST tax exclusions or exemptions.

But this technique is available only for tuition, not for other expenses, such as room and board, fees, books and equipment. So it may be desirable to combine it with other techniques.

A disadvantage of direct payments is that, if you wait until the student has tuition bills to pay, there’s a risk that you’ll die before the funds are removed from your estate. Other techniques allow you to set aside funds for future college expenses, shielding those funds from estate taxes.

If your grandchild is planning to apply for financial aid, also be aware that most schools treat direct tuition payments as a “resource” that reduces financial aid awards on a dollar-for-dollar basis.

Making direct tuition payments is just one strategy available for funding your grandchild’s college education while minimizing taxes. Contact us to discuss additional options.

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Scott Husaby

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