Opinions expressed by BIZ Experiences contributors are their own.
Funding tuition bills--long a tax-efficient way to pass money onto future generations--just got a boost as an estate-planningtool.
A recent IRS ruling suggests that taxpayers can not onlycontribute to annual tuition costs without incurring estate andgift taxes, but can also contribute tuition for several years atonce, says Susan C. Frunzi, a partner at law firm Schulte Roth& Zabel LLP in New York City. "There's always been anexemption from gift tax and generation-skipping tax for tuitionpaid directly to a school," says Frunzi. "But this rulingclarifies that you can prepay tuition for multiple years and stillqualify for the exemption."
With tuition bills skyrocketing, four years of tuition caneasily add up to $200,000 or more--making the prepayment option agreat way for relatives of private school- and college-bound kidsto save significantly in estate taxes. The method is particularlyapropos for wealthy taxpayers who want to fund a student'stuition but fear that they won't live long enough to pay thebills as they become due.
But prepayment comes with a caveat. "These payments arenonrefundable, so if the student drops out of school or transfers,you won't get your money back," says Frunzi, who notesthat the school's policy on prepayment should be carefullyscrutinized. "For example, you'll want to know whether youlock in the tuition rate or are responsible for tuition increases,and [whether] the taxpayer gets credit for interest earned on theprepaid money. Ideally, a taxpayer's lawyer should look overthe terms of the agreement."
Board Games
U.S. director compensation continues to soar annually--2005figures were up a hefty 14 percent from 2004 and 64 percent from2000, according to executive search firm Spencer Stuart's 2005Board Index. Those double-digit increases don't bode well forearly stage companies seeking director candidates, says PhilJohnston, managing director of the company's San Franciscooffice. "Essentially, [small and large companies] are lookingat the same pool of candidates," he explains. "So whenpeople see compensation rising at large, established companies,they expect to be reasonably paid to serve on the boards ofsmaller, growing ones, too."
The turbulent IPO market of recent years has also played a rolein raising cash demands, spurring potential directors to require aportion of their compensation in cash instead of just equity."A few years ago, they wanted all the equity they couldget," reports Johns-ton, who points out that serving on theboard of a young company can be demanding. "But since then,many people have served for years on boards that still haven'thad a liquid-ity event. Now many great directors won't go forequity-only board compensation. That's the biggest changewe've seen post-2000."
But Johnston is quick to add that early stage and pre-IPOcompanies seeking to fill board seats should not despair. The IPOmarket is beginning to swell, which may lead back to equityorientation. "And there are always directors who gravitatetoward the hands-on excitement of an earlier-stage company,"he says. "They like to be on the cutting edge; they don'tcare as much about the compensation."
Financial Frontier
Thanks to NASA, starry-eyed technology BIZ Experiencess will soonhave a new potential funding source. Tentatively dubbed Red PlanetCapital, the initiative will be modeled after In-Q-Tel, the privatenonprofit funded by the CIA that works with BIZ Experiencess,established companies, universities, researchers and VCs to developtechnologies that serve U.S. interests.
"The goal for NASA is to be able to support emerging,innovative technologies that will help us with our space missions,such as setting up a permanent moon base and embarking on journeysto places like Mars," explains NASA's Melissa Mathews. Shesays NASA has earmarked $11 million for the initiative in 2006 andwill eventually up that amount to $20 million per year. "Thekinds of technologies we're interested in include waterrecycling, communications and biomedical support, amongothers."
Like In-Q-Tel--which reportedly couples every $1 it invests with$3 of private capital--Red Planet Capital will leverage its ownfunding capital by investing in syndication with existingprivate-sector corporate and financial venture funds.
"Our objective is to support technologies to meet ourfuture mission needs, achieve sustained positive financial returnsand better position these technologies for future commercialuse," explains Mathews. "The In-Q-Tel model illustratesthis is possible for a relatively small investment."
While the fund is currently still under development, NASA plansto begin making investments by the end of 2006, according toMathews: "We'd like to get the fund operational by summerand have investments in place before the end of the fiscalyear."
