Using a 529 Savings Plan in Your Estate Plan

Have you ever heard of a 529 savings plan? If so, you probably heard that it can be a great way to save for a child’s or a grandchild’s educational expenses. The name for this tax-advantaged investment vehicle comes from the Internal Revenue Code section that authorizes them. 529 savings plan provides a way for investment earnings to grow while staying sheltered from federal income taxes. When withdrawals are made to be used on qualifying education expenses, the distributions are tax-free as well. On top of being a great way to save for a loved one’s educational expenses, which seem to be forever on the rise in the U.S., a 529 savings plan can be a great option to include in your estate plan as well.

Using a 529 Savings Plan in Your Estate Plan

While a 529 savings plan was designed to help pay for expenses associated with pursuing higher education, it can be a really valuable estate planning tool and should definitely be considered during the estate planning process. What a 529 savings plan really has to offer in terms of estate planning is a way to support a long-term gifting strategy that allows a person to remove a substantial amount of assets from his or her taxable estate while permitting that person to retain a substantial amount of control over the assets that have been removed and placed in the savings plan.
You see, with gift tax exemptions, you can execute a way to gift a significant portion of your assets to loved ones through a 529 savings plan. The IRS allows a lifetime exemption from estate taxes at $11.58 million. Those with assets falling above this threshold stand to incur serious estate tax implications unless the number of taxable assets is removed from the estate so that the total worth of the estate falls within the exemption limit.
An individual is allowed to gift $15,000 and married couples are permitted $30,000 in gifts to a single beneficiary per year without worrying about taxes on the gift. There is also the option to accelerate gift-giving and an individual can gift $75,000 and a couple can gift $150,000 per individual and still claim the gift tax exemption averaged out over a five-year period. The individual or the couple, however, will not be able to give any more gifts to the individual in the next five years without incurring a gift tax. The gift tax exemption, however, allows an individual or couple to remove a significant portion of assets that may otherwise be included in their taxable estate and transfer it to a 529 savings plan.
The 529 plan has the added benefit of being able to stretch across multiple generations. If a 529 savings plan is established for a child and he or she does not exhaust the funds held in the savings plan, the remainder can stay in the open 529 account and the beneficiary can be changed to another family member such as a child or even a grandchild.

Estate Planning Attorneys

For all of your estate planning options, OC Wills & Trusts is here for you. We can help you maximize the benefits of estate planning by evaluating all of your options. 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.