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Should I pay my grandchild’s tuition directly to the college or should I give the money to my grandchild so he or she can pay the tuition?

Payments made to colleges directly or medical  expenses paid to medical providers for the benefit of someone else are not treated as gifts for Federal gift tax purposes regardless of the payment amount.  For example, if a person pays $25,000.00 to directly to a school for a grandchild’s college tuition, the payment would not be treated as a taxable gift and no Federal gift tax return will need to be filed.  However, if the same person gave $25,000.00 to a grandchild rather than directly to the grandchild’s college, $12,000 of that gift ($25,000.00 – $13,000.00 annual exclusion) would be be counted against in the person’s lifetime gift tax exemption.   The person would also have to file a Federal gift tax return to report the gift.