3 Strategies for Funding Education

Beth McRae Mayfield
August 26, 2019

Are you planning to support the next generation’s education? If you have adult children, it’s natural to want to help them financially. Here's some tactics that can help you maximize your contribution.

One of the ways you can reduce your children’s financial burden is by funding your grandchildren’s education expenses. Unfortunately, gifting a large sum of money will utilize some of your lifetime gift tax exemption ($11.4 million per donor in 2019) or, if you have used your gift tax exemption, can subject you to a 40% gift tax. There’s also a generation-skipping transfer (GST) tax of 40% for any gift made directly to your grandchildren in excess of the GST tax exemption of $11.4 million ($22.8 million for married couples) in 2019. The good news is there are strategies that may allow you to avoid paying either of these taxes. By understanding these strategies, you can select the ones that make the most sense for your family.


Without using your annual exclusion or lifetime exemption, you can pay your family’s tuition expenses without limit as long as you write the check directly to the educational institution. Paying these costs directly has several benefits, including:  

  • The ability to spend as much as you wish without triggering the gift tax or GST tax
  • The flexibility to pay for any level of education, from preschool to graduate school
  • The option to make tuition payments annually or prepay tuition expenses 

Annual exclusion gifts are a simple, yet powerful, way to assist the next generation. If you want to use your annual exclusion—$15,000 per donee in 2019 ($30,000 for married couples)—to help fund education expenses, you have several options, including:

  • Funding a Section 529 education savings plan
  • Funding an UTMA account
  • Funding a 2503(c) Trust or a Crummey Trust

You also have the option of lending your children money to help them pay education expenses. Compared to paying tuition directly or making annual exclusion gifts, lending money comes with unique considerations, including:

  • Certain formalities are required, but the interest rate can be significantly lower than a bank loan
  • If your children are relying on you to fund their children’s education expenses, it’s wise to make sure your estate plan contains provisions to continue covering these expenses into the future

Funding your family’s education expenses is a great way to provide financial assistance and can be done without triggering the gift tax or GST tax. To ensure you’re well-prepared when the time comes, you can start saving early to benefit from the power of compounding. Over time, even modest savings can grow to a substantial sum.


For more information on strategies for funding education, visit our Supporting the Next Generation’s Education resource page.

Beth Mayfield is a senior wealth strategist for CIBC Private Wealth Management in Atlanta, with more than 20 years of industry experience. In this role, she works closely with clients and their advisors to develop and implement charitable, estate and wealth transfer planning as part of CIBC Private Wealth Management’s integrated wealth management process.