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Study Plans

Tax rules, funding tuition bills and more.

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This story appears in the July 2006 issue of Entrepreneur. Subscribe »

Funding tuition bills--long a tax-efficient way to pass money on to future generations--just got a boost as an estate-planning tool.

A recent IRS ruling suggests that taxpayers can not only contribute to annual tuition costs without incurring estate and gift taxes, but can also contribute tuition for several years at once, says Susan C. Frunzi, a partner at law firm Schulte Roth & Zabel LLP in New York City. "There's always been an exemption from gift tax and generation-skipping tax for tuition paid directly to a school," says Frunzi. "But this ruling clarifies that you can prepay tuition for multiple years and still qualify for the exemption."

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