The HEET Is On

The wealthy are increasingly turning to a Health and Education Exclusion Trust (HEET) as a means for funding medical and education expenses for their grandchildren. HEETs offer the ability to pay for virtually any type of education – not just costs associated with college as is the case with 529 plans. Additionally, because HEET funds must be paid directly to an educational institution or medical provider, the generation-skipping transfer tax (GST) is avoided.

So what's the catch? Really there is none, except for a requirement a charity (which can even be the family's own foundation) must receive a significant donation. Although there are no specific rules for defining "significant," most experts agree the donation should be sizable enough (10% to 20% of the HEET's annual income) not to draw the attention of the Internal Revenue Service (IRS), leading them to conclude the HEET has been established as a vehicle for steering clear of GST.

On the medical side, for wealthy families who have a family office, HEET income has been used to pay for medical insurance, and it can also be used to pay health insurance premiums.

Source: lexisone.com, 10-17-05