Turbo Charge Your Estate Planning with a 529 Account
With Labor Day just past, most students have now returned to school and you’re maybe thinking about contributing to a college savings plan. One popular college saving plan is the 529 plan. A 529 plan can also be a useful estate planning tool. Funds held in a 529 account is exempt from federal estate tax. Therefore, the amount saved in a 529 account does not count toward your taxable estate. Further, annual contributions to 529 accounts of $16,000 or less are excluded from the gift tax and do not use any lifetime exemption. Even better, the IRS allows you to front-load a 529 contribution by making a lump-sum gift of $80,000, which is treated as though it were given over five years ($16,000 each year). Even better, a husband and wife can double that amount. Your contributions do not need to be to an account that you set up. For example, a grandparent can contribute to a parent owned 529 account. There are limits on the total amount of contributions per account that vary from state to state, but the earnings may continue to accumulate.
While the money in a 529 plan is not treated as your asset, as the account owner, you retain control over it. You can invest the money as you see fit, withdraw the money as needed, and change the beneficiary of the plan. A word of warning, earnings withdrawn will be subject to income tax and a penalty if used on non-educational expenses and will then be part of your estate.
If you have a trust, such as a revocable living trust, the trust can own the 529 plan. But your trust should include language allowing your Trustee to manage the account. Naming the trust is not necessary to avoid probate. All that needs to be done is to name a successor on the account.
Another great benefit of a 529 plan is the ability to change a beneficiary. If the original beneficiary is not inclined to pursue higher education or has other resources, re-directing the account to another beneficiary can ensure that it is available to someone who needs it.
If you have questions about setting up a 529 account or how a 529 account can benefit your estate plan, make sure you are consulting with a qualified financial advisor or estate planning attorney.
This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.