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Help Your Grandchildren!

   Plan Ahead
   to Shape the Future

If you want to help your grandchildren through college, there are several options to help pay their expenses and trim your family's tax bill at the same time. Here are three tax-wise tips to get the maximum bang out of your education buck:

 Write a check

The tax law lets you give $12,000 in cash a year for 2006 ó or $24,000 if your spouse contributes ó  without having to pay a gift tax (up from $11,000 and $22,000 respectively for 2005). Just write out checks and give them to your grandchildren. If the children still have a few years before college, set up a custodial account at a bank, mutual fund or brokerage firm. The money can be used for tuition or other college-related expenses.

 Give stock

If you give appreciated stock or other investments to your college-bound grandkids, your family can slash the capital gains tax bill. Let's say you're in the 33 percent tax bracket and you want to sell stock you've owned two years to free up some cash for tuition. For stock sold in 2005 or 2006, you'll wind up paying a 15 percent capital gains tax rate on the profit. But if you give the stock to your teenage grandson, he can sell the assets and pay only 5 percent tax on the gain, assuming heís in the 10 or 15 percent tax brackets. This saves your family a nice chunk of money that can be applied toward college expenses.

(NOTE: According to theTax Increase Prevention and Reconciliation Act signed by President Bush in May 2006 the five percent capital gains rate is effective through 2007. For 2008-2010, the rate will drop to zero. The same preferential treatment will also apply to qualified dividends received through 2010.)

 Pay tuition yourself

Under current tax law, unlimited tuition payments can be given directly to a college with no gift-tax implications. The catch is the money cannot pass through the hands of grandchildren (or their parents) first. It must go directly from your account to the university. This might be appealing if you're worried about the youngsters spending it frivolously.

This tax break applies only to tuition and canít be used to pay room, board and other college expenses. However, you and your spouse can still each give the child a tax-free cash gift of up to $12,000 in 2007 to cover those other expenses. Ronald J. Cappuccio, J.D., LL.M.(Tax) 1800 Chapel Avenue West Suite 128 Cherry Hill, NJ 08002 Phone:(856) 665-2121      Fax: (856) 665-9005 Email:

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