Benefits of a 529 Savings Plan as Part of Your Estate Plan

There seems to be more talk about 529 Savings Plans recently. A 529 plan is a savings plan with tax advantages that is designed to encourage people to save for the future costs of education. It may then be no wonder that more and more people are talking about 529 plans as the cost of education in the United States has skyrocketed in recent years. With the gain in popularity of these plans, many have also found that 529 savings plans can have several important benefits when included in the estate planning process.

Benefits of a 529 Savings Plan as Part of Your Estate Plan

Originally, 529 savings plans were a vehicle for parents with younger children to begin saving and investing money for future college expenses and expenses associated with higher education. More recent changes, however, now allow parents, and grandparents, to use 529 plans to save for private elementary and high school expenses as opposed to only college expenses. If money is left over after a person has completed schooling, the money left in the plan can continue to grow for the next generation and can actually grow in perpetuity for future generations. A 529 is transferable and the funds held in the 529 plan can be transferred to another beneficiary.
The appeal of 529 plans is primarily that assets held in the plan can grow in a tax-deferred way. Withdrawals from the plan are tax-free when they go towards paying for qualifying expenses. Another benefit of the 529 plan that is particularly important when taken into the estate planning context is that contributions made by parents and grandparents to the 529 plan are considered gifts.
The fact that parent and grandparent 529 plan contributions are considered gifts allows for the employment of a potentially very beneficial estate planning strategy. There is a gift tax exemption available to use. You can give up to $15,000 per person in gifts each year without tax consequences. In fact, you are even allowed to give such a gift 5 years in advance. This means that you can give up to $75,000 per person as a gift at one time and there would be no gift tax consequences unless other gifts were made over the course of those five years to the same people. This means you can give a substantial amount of your wealth as a tax-free gift and that the amount will be removed from your taxable estate.
Another appealing aspect of a 529 plan is the fact that, while gifts made to the plan remove the amount form your estate for estate tax purposes, you continue to retain control over the assets held in the plan. On top of all of this, if the 539 plan is held by the grandparents of a child or someone else who is not one of the parents of the child, the 529 plan is not included on the Free Application for Federal Student Aid (FAFSA) which means the child may remain eligible for more student aid packages.

Estate Planning Attorneys

For more tips on maximizing the benefits of estate planning, talk to the knowledgeable team of estate planning attorneys at OC Wills & Trusts. Contact us today.

Brian Chew, the managing partner of OC Wills & Trust Attorneys, has extensive experience in the areas of estate planning, asset protection planning, business succession planning, long-term care planning, and veterans’ benefits. By devoting his practice to estate planning matters, he has founded a firm that strives to provide exceptional service to their clients by working closely with individuals and their families to create comprehensive and customized estate plans. For the past twenty five years, Brian has served thousands of clients in the matters of estate planning, wills and trusts. If you have any questions about this article, you can reach Brian Chew here.