Study Plans Tax rules, funding tuition bills and more.

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

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

With tuition bills skyrocketing, four years of tuition caneasily add up to $200,000 or more--making the prepayment option agreat way for relatives of private school- and college-bound kidsto save significantly in estate taxes. The method is particularlyapropos for wealthy taxpayers who want to fund a student'stuition but fear that they won't live long enough to pay thebills as they become due.