It’s fall, and many college kids will be heading off to school soon. If you are one of those generous grandparents with soft hearts for the younger generation, here are some ways you might help the younger, broke members of your family without plopping a lot of [beer] money into their bank accounts:
529 Plans. “529s” are state-sponsored education savings plans that allow you to deposit after-tax money into an account which grows income-tax free. Distributions for qualified education expenses are also tax free. The account may be used to pay for education expenses from kindergarten through graduate school.
Qualified Tuition Payments. In order to make a gift to someone without the obligation to file a gift tax return, we generally must limit our gifts to below the annual gift tax exclusion amount ($13,990 for 2025). However, direct payments to educational institutions for tuition expenses can be of any amount; there are no gift tax implications.
Unified Transfer to Minors Act (UTMA) Accounts. UTMA accounts are essentially abbreviated trust accounts established for the benefit of someone under the age of 21. They are set up easily with a financial institution, regular gifts can be made to the account, and a custodian is named who can make distributions for the minor. The balance of the account is given to the beneficiary when he or she turns 21 (a nice college graduation gift).
Health and Education Exclusion Trusts (HEETs). HEETs are irrevocable trusts that allow wealthy individuals to make tuition and healthcare payments for grandkids and younger generations while preserving their generation-skipping transfer tax exemption for other large gifts.
Gifts should not be structured to be outright to minor children, either through a Will or beneficiary designation. An expensive guardianship procedure will be required for the child to access the money.
Attorney Kendra Rey is an attorney at Hammerle Finley Law Firm, a boutique law firm offering services in estate planning, probate, guardianship, business law, litigation, and real estate. Contact her at (972) 436-9300. This article does not constitute as legal advice.
(Sponsored content)
