Are you looking to help finance the cost of your grandchildren's college education or medical expenses? There are many possible ways to go about that, including contributing to a Section 529 college savings plan for them or simply paying their health costs. But one increasingly popular method is to use a health and education exclusion trust, commonly known as a HEET (pronounced "heat").

What makes HEETs so hot in estate planning circles these days? If properly structured, a HEET avoids the pitfalls of estate and gift tax and the generation-skipping tax (GST) that may hinder other approaches. And its benefits can help future generations of your family.

Normally, gifts during your lifetime are shielded from gift tax by an annual gift tax exclusion ($14,000 in 2017), with any excess covered by a unified estate and gift tax exemption ($5.49 million in 2017). The exclusion and exemption amounts are indexed annually for inflation (although the gift tax exclusion is the same as it was last year). But if you use part of that exemption for gifts while you're alive, there will be less available to shelter assets from estate tax when you die. In addition, gifts that "skip" a generation—for example, gifts that go directly from a grandparent to a grandchild—are generally subject to the GST tax. There's a GST exemption to shelter such transfers for lifetime gifts and bequests that skip a generation.

A HEET is designed to sidestep all of that. It is based on a special provision of the tax law that says that gifts made directly to an educational institution or a health care provider don't count as gifts for tax purposes. In other words, these gifts are tax-free above and beyond the usual exclusion and exemption amounts.

The key is that the transfers from the HEET have to go to a college or a hospital, say, rather than directly to a student or patient. Any distribution made to the beneficiary or to a party other than an educational institution or health care provider will trigger tax consequences.

Once it is funded, a HEET can pay an unlimited amount of qualified educational or medical expenses on behalf of the beneficiary. Under prevailing rules, "qualified education expenses" include tuition paid for a student to attend a primary, secondary, undergraduate, or post-graduate domestic or foreign education program. The beneficiary may be a full- or part-time student. The definition of "qualified medical expenses" is the same as the tax law definition of those expenses for medical deductions.

Once you set up a HEET, it can cover the education and health care expenses of multiple beneficiaries over several generations. Money that isn't used by one generation will be there for the next one.