Direct Tuition Payments: An Attractive Option for Funding Your Grandchild’s College Education

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01.18.16 | T&E Chat

Making direct tuition payments is just one strategy available for funding your grandchild’s college education while minimizing taxes.

As the cost of a college education continues to soar, you can help fund your grandchild’s higher education by making tuition payments on behalf of him or her. As long as you make the payments directly to the college, the payments avoid gift and generation-skipping transfer (GST) tax without using up any of your annual or lifetime gift or GST tax exclusions or exemptions.

Please note that this technique is available only for tuition, not for other college expenses, such as room and board, fees, books and equipment.

There is, however a disadvantage of making direct payments. Because you must wait until the student has tuition bills to pay, there’s a risk that you could pass away 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.

Interested in making tuition payments for your grandchild? Contact me at msvagna@berdonllp.com or your Berdon advisor us to discuss additional options.