Within those limitations, this is a big deal if one is lucky enough to have a wealthy grandparent or the proverbial rich uncle. At today’s cost of attending college, this allows an instantaneous six figure transfer of money without triggering the gift tax but also removing that amount from the relative’s estate.</p>
<p>While most of aren’t lucky enough to have relatives wealthy enough to trigger the “death tax”, there could be other motivations to get the money off the relative’s balance sheet sooner rather than later. For one, should the relative die suddenly, there’s no complication with the college money going to someone else due to the wording of the will; even if the will allows for the college money, actual payments could get tied up in the probate process. Another situation is a possible future need for long-term care for the relative, which often depletes personal assets completely.</p>
<p>Presumably, this strategy would be best for students with no expectations of need-based aid. I’m not sure how a college would count a lump-sum deposit for prepaid tuition in the student’s name, but I’d guess at the very least it would be counted as a student cash asset and cause a major boost in the EFC. If a relative wanted to contribute, say, $10 K per year for four years and wanted to transfer all funds immediately, it might be best to deplete that money in the first year if possible rather than having a major asset lingering on the student’s balance sheet impacting the EFC each year. If you are in this situation, ask the college how they would treat the prepaid tuition. Purely from an EFC standpoint, having the relative hang onto the cash (in the $10K per year scenario) is probably best.</p>
<p>As with any major financial move, it’s best to consult a qualified professional advisor before taking action. There are a few ways that this strategy could turn out to be counter-productive, so don’t take any chances.</p>
<p>my friend’s parents paid his and his older brother’s tuitions in full - which was bad for his brother because he wanted to transfer. they both go to upenn.</p>
<p>Yes, seriously. On a sadder note when the Republicans were pushing their tax cuts for the wealthy many members of the Congress wanted to increase tax deductions for college tuition, but it was rejected, by well, Republicans. Education is a big threat to the Republicans. (Hopefully you get that).</p>
<p>This is slightly different, but how do colleges handle a situation where a student is given a sum of money that is earmarked to NOT be used for college? Would that count against financial aid, if it is specifically to remain unspent until a certain age, say in trust until the person is 25 and is not to be spent on school?</p>
<p>confused: Why do you liberals have to interject your ******** into EVERYTHING? This thread isn’t a circle jerk for you hating Republicans. Christ.</p>
<p>It seems to me that this has more impact on prepaid tuition plans since most people won’t bet the farm that their grandchild will decide to attend and be admitted to one particular college. And I suspect that most if not all of the prepaid tuition plans received IRS private rulings because grandparents have been able to buy prepaid plans for years for their grandchildren without worrying about gift taxes. However, it is interesting that the IRS has issued a public ruling. </p>
<p>Actually, it’s possible this ruling limits rather than expands or protects the ability to purchase prepaid tuition plans. The article states that the transfer must be nontransferable and nonrefundable. Most prepaid tuition plans are transferable and refundable (in special circumstances) so I’m curious how this new ruling affects future purchases of prepaid plans.</p>
<p>anyone know how this could impact financial aid… i.e. say a college costs $40,000 a year and a student’s EFC is $20,000.</p>
<p>If a rich uncle sends a college a $40,000 check to prepay for 2 years of tuition (Based on current financial aid), would the college give no financial aid and use that money for 1 year?</p>
<p>Question may have been answered before but …</p>
<p>My particular situation … an uncle who’s going to contribute $30k/year over 4 years to a niece’s college education…</p>
<p>Are there any tax implications for either side of this transaction? If so, is there a way of avoiding it?</p>
<p>Niece starts college this fall. This need was communicated to me just recently, there was thus no time to prepare in advance for tax minimization.</p>
<p>If he can’t give it directly to the school without consequence as mentioned in the lead post, he can split the gift into 3 pieces - $10K to the dad, $10K to the mom, $10K to the niece. Then there are no gift tax issues because the limit is $13K per year.</p>
<p>Our in-family financial planner was just reading about this very case. taxtax, the uncle should double-check with his own financial professional, but my understanding is that the only tax consequence is reducing the giver’s estate. I don’t remember how or if a gift consisting of a check written directly from the giver to the recipient’s school affects financial aid. This might have consequences for future FA awards, so you might be better to have the uncle write annual $7.5k checks rather than a single $30k check. </p>
<p>Again, consult your own experts to find out what’s best for your specific financial situation.</p>
<p>There have been instances where kids who have had their tuition paid have had to pay it back to the state if the relative is put in a nursing home and has to pay down assets to be eligible for Medicaid.</p>