Have You Thought About 529 Plans ... as Part of Your Estate Plan?

Assuming you and your financial advisor have determined that you will not outlive your assets, have you considered investing in the higher education of your grandchildren? If yes, what do you know about 529 Plans?

You may want to give them a look.

According to a recent National Law Review article, titled "529 Plans: Estate Tax and Income Tax Advantages," gifting is appropriate for tax purposes for grandparents and parents wanting to save for escalating college tuition. Contributions to 529's are treated as gifts for tax purposes, and they qualify for the $14,000 annual gift tax exclusion.

Another benefit is that these contributions can be "pre-funded" for five years. This means that $70,000 per parent (or $140,000 for a married couple) can be removed from the donor’s estate more quickly than annual contributions. Remember, though, that the donor must survive the five years, or some of that gift with be placed back in the taxable estate. [Nothing like a little more positive incentive to eat bran muffins and go for an extended walk!]

The investment grows tax-free as far as federal income taxes, and the distributions used to pay beneficiary's college costs (tuition and books) also are not taxed. State law, however, may impact the state income tax liability.

Other advantages to a 529 plan include the donor's control of the funds. In a custodial account, the recipient receives the funds at 18 or 21, and other gift strategies require giving up control to get an estate tax exclusion.

The only real disadvantage for 529’s is when your grandchild is applying for financial aid. In that context the 529 may be deemed an asset.

Nevertheless, 529 plans can still be a sound choice from the perspective of both estate tax exclusion and income tax reduction without a great deal of expense or time. Even so, talk to an experienced estate planning attorney and get sound advice. He or she can coordinate with your financial advisor regarding where set up the best 529 for your grandchild and to implement the best strategies in keeping with your estate planning objectives.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.

Reference: The National Law Review (September 8, 2014) "529 Plans: Estate Tax and Income Tax Advantages"