A primary goal of estate planning is to financially provide for your loved ones. One way to ensure that they are set up for lifelong success is with an inheritance that pays for their education.
Higher levels of education are positively correlated with better life outcomes, including improved health, longer lifespans, and higher incomes.[1] However, education costs across all levels have risen significantly, pushing a good education out of reach for many families and saddling students with debt that can take decades to pay off.[2]
From primary school to postgraduate studies, you can invest in a loved one’s education and maximize their potential through your estate plan. Options include direct payments, 529 plans, and money from a will or trust, often with associated tax breaks.
While educational gift options abound, their legal mechanics, tax implications, and benefits differ depending on when and how they are given, and restrictions may apply.
Higher Education = Greater Well-Being—but at What Cost?
The economic and noneconomic benefits associated with a college degree are well established.
Compared with people who completed only a high school diploma, those with undergraduate degrees not only earn significantly more on average over their lifetimes and are less likely to be unemployed but also tend to enjoy better health and a higher quality of life, including higher job satisfaction, improved self-esteem, improved access to healthcare, and increased civic engagement.[3]
Although the economic advantages of a college degree vary based on the degree earned[4]—and despite the rising costs of postsecondary education—most Americans recognize the value of college and view a degree as a “golden ticket” to prosperity.[5]
However, earning a college degree has never been more expensive, and these costs are forcing some Americans to rethink whether it is worth the investment.
Tuition and fees have tripled since the 1960s. These rising costs, which include room and board, books, and other supplies in addition to tuition, are discouraging many students from attending college and contributing to enrollment declines.[6]
The average federal student loan debt balance in 2024 was nearly $40,000, while the total average balance (including private loan debt) is even larger.[7] Today, the typical public university student borrows almost $32,000 to earn a bachelor’s degree.[8] Far from the “golden ticket” of a degree, student loan debt can limit wealth building and upward mobility instead of opening doors.
As college enrollment declines, trade programs are picking up the slack. Trade and vocational schools are usually a much cheaper option than a traditional four-year college. Programs cost approximately $5,000 to $20,000 and are often completed within two years.[9] Enrollment in these programs, which many young people see as a quicker and more affordable path to a good job, has seen strong growth, including double-digit increases in some fields.[10]
In addition, students who take advantage of internships and externships while in college have improved employment prospects.[11] However, even a paid internship can impose costs on students, such as housing, transportation, and other living expenses.
Family Contributions Are Vital to Achieving Educational Goals
Families are a significant funding source for education at all levels. Every dollar a family invests in a loved one’s education alleviates their potential debt burden and fast-tracks their future success. To make your legacy a launchpad for their achievements, consider the following educational gifts and their potential tax benefits:
- Direct tuition payments. Tuition paid directly to an educational institution is not considered a taxable gift.[12] This exemption applies to K–12 schools, colleges, and trade schools but covers only tuition—not room and board, books, or other expenses. It allows parents, grandparents, or other relatives to contribute without using their annual or lifetime gift tax exclusion.
- 529 plans. Contributions grow tax-free, and withdrawals for qualified educational expenses (tuition, fees, books, room and board, computers) are also tax-free at the federal level. Since 2018, funds from 529 plans can be used for K–12 tuition (up to $10,000 per year). Some states offer tax deductions or credits for contributions, and, starting in 2024, unused funds can be rolled into a Roth IRA for the beneficiary (subject to limits).
Gift Timing
Education funding can take place during your lifetime or after you die. Lifetime gifts use gift tax rules. Post–death gifts fall under estate tax rules that are applied at death.
However, because the lifetime gift and estate tax are unified, using one affects the other, and lifetime and post–death estate planning strategies should not be viewed separately. You might, therefore, use a mix of lifetime and posthumous educational gift strategies. Consider these common scenarios:
During Life
- Direct tuition payments. You can pay tuition to an educational institution at any time while you are alive, and it is immediately exempt from gift tax.
- 529 plans. You can establish and fund a 529 plan while alive, taking advantage of tax-free growth over time and the ability to front-load five years’ worth of annual exclusions ($95,000 in 2025). You control the account and can adjust beneficiaries as needed.
- Payments to loved ones for a specific purpose. Currently, you can give $19,000 per year per recipient tax-free during your life for any purpose, including nontuition expenses such as internship costs or field trips, reducing your taxable estate while you are alive.
After Death (via Will or Trust)
- Direct tuition payments. You can set up a will or trust to allocate funds for tuition, directing your executor or trustee to pay educational institutions on behalf of a loved one.
- 529 plans. You cannot fund a 529 posthumously through a will because it is a lifetime savings vehicle tied to a living account owner. However, you could name a successor owner (e.g., a spouse or child) for an existing 529, or your estate could distribute funds to a beneficiary who then opens a 529, though this option loses the predeath tax-free growth benefit. After your death, the executor of your estate or the successor trustee of your trust can distribute the funds to an existing 529 plan, depending on what your will or trust instructs and what funds are available.
You might also consider using a trust created via your will (testamentary trust) or funded during your life (revocable living trust) that offers gifting flexibility. You can instruct the trustee to pay for tuition, tech, or living expenses, mimicking lifetime strategies. Trusts can also be tailored (e.g., “pay tuition directly to schools” or “distribute $10,000 yearly for education”).
Whether it incorporates a gifting-while-living strategy or a standard inheritance, your estate plan can unlock the power of education while leveraging tax breaks. Schedule a meeting with us today to discuss specific strategies and which one is best for you and the student in your life.
[1] Anna Zajacova & Elizabeth M. Lawrence, The relationship between education and health: reducing disparities through a contextual approach, Annual Rev. of Pub. Health vol. 39 (Jan. 12, 2018), https://pmc.ncbi.nlm.nih.gov/articles/PMC5880718.
[2] Adam Looney, How Much Does College Cost, and How Does It Relate to Student Borrowing? Tuition Growth and Borrowing Over the Past 30 Years, Higher Educ. Today (Sept. 9, 2024), https://www.higheredtoday.org/2024/09/09/surprising-trends-in-college-costs-and-student-debt.
[3] Shayna Joubert, 10 Benefits of Having a College Degree, Northeastern Univ. (Nov. 15, 2024), https://bachelors-completion.northeastern.edu/news/is-a-bachelors-degree-worth-it.
[4] Economic Benefits: How College Graduates Earn More Over a Lifetime, Baker Coll. (Nov. 27, 2024), https://www.baker.edu/about/get-to-know-us/blog/is-college-worth-it-benefits-of-going-to-college/#:~:text=For%20example%2C%20certain%20tech%2Doriented,not%20kept%20up%20with%20inflation.
[5] Preston Cooper, Does College Pay Off? A Comprehensive Return on Investment Analysis, Freopp (May 8, 2024), https://freopp.org/whitepapers/does-college-pay-off-a-comprehensive-return-on-investment-analysis.
[6] Id.
[7] Melanie Hanson, Student Loan Debt Statistics, Educ. Data Initiative (Mar. 16, 2025), https://educationdata.org/student-loan-debt-statistics.
[8] Id.
[9] Lyss Welding, How Much Does Trade School Cost?, Best Colls., (May 23, 2024), https://www.bestcolleges.com/research/how-much-does-trade-school-cost.
[10] Olivia Sanchez, Trade programs—unlike other areas of higher education—are in hot demand, The Hechinger Rep. (Apr. 17, 2023), https://hechingerreport.org/trade-programs-unlike-other-areas-of-higher-education-are-in-hot-demand.
[11] Diane Galbraith, Ph.D. & Sunita Mondal, Ph.D., The Potential Power of Internships and The Impact on Career Preparation, 38 Rsch. in Higher Educ. J. 3, https://files.eric.ed.gov/fulltext/EJ1263677.pdf (last visited Apr. 22, 2025).
[12] I.R.C. § 2503(e), https://www.govinfo.gov/content/pkg/CFR-2010-title26-vol14/pdf/CFR-2010-title26-vol14-sec25-2503-6.pdf.
Posted in: Estate Planning, Funding, Gifting, Legacy, Student Loan Debt