Back in 1982, the average cost of tuition, room, and board for a year at a public college was $4,000. Over the next 13 years, the cost rose 250 percent, to $10,000.

The trend can be expected to continue. By the year 2007, the cost of attending a public college for one year is projected to reach $30,000. If you have a daughter now who is 10 years old, it will cost $100,000 to put her through college.

Other factors, such as the increasing popularity of private education and the necessity of graduate or professional degrees in competing for jobs, make the prospect of paying for children's or grandchildren's education very daunting indeed.

You may well be asking how you can finance your child's college education and still minimize your taxes. Also, is there still a reason to use a trust in financing a college education? Yes, because a trust gives you control over how and when the money will be used. Also, the trustee can structure the investments and the distributions to minimize the taxable income of the trust, the beneficiary, and the grantor.

Alternatives to Trusts

These alternatives, among which are such possibilities as hiring your children or making them tenants, provide certain gift and income tax advantages above and beyond those offered by trusts.

• Qualified state tuition programs. The Small Business Job Protection Act of 1996 created a unique, tax-advantaged savings account.

• Qualified educational payments. In addition to the $10,000 annual exclusion, Congress allows any person to make direct payments to a university for tuition and fees without incurring a gift tax. The payment must go directly to the university and may not include room and board, textbooks, or other such expenses.

• Making your child your tenant. Parents owning rental property near the campus of the college or university their child attends can transfer the income from that property to the child without having to use an equipment trust.

• Hiring your children. Another alternative to giving money to your children is hiring them to work in a family business, where that's a feasible option.

Decisions concerning trusts, custodial accounts, and other strategies designed to provide for your children's future needs are not choices to be made lightly. You are choosing what may be some of the most formative influences on the next generation. PE

B. Ray Anderson is a lawyer specializing in tax planning. This article was adapted from Trusts You Can Trust, and used with permission.

ACTION: Inform yourself of the most sound ways that you can invest for your child's education.