Legal Blog

The Weekly Scenario: 529 Plan

Question: How can a 529 plan benefit my estate plan?

Answer: College savings plans (or “529” plans named for the section in the tax code) offer some unique estate planning benefits.

Even though you can get your contributions to your 529 plan back, these are still considered completed gifts for federal gift tax purposes. Moreover, individuals who make contributions to a 529 plan are able to exclude amounts of up to $14,000/year to each recipient of the gift without triggering gift taxes.

529 plans allow a person to consolidate five years worth of annual exclusion gifts into a single year. For example, husband and wife who wish to make gifts to their 3 children (and have the wherewithal to do it) in year 1 can contribute $140,000 ($28,000 x 5) to each plan, gift tax free (total of $420,000).

After 5 years, these gifts are not included in your taxable estate. If death occurs during the 5 year period, a portion of contributions will be included in the taxable estate.

For estate tax purposes, after 5 years, all contributions (any all earnings on the contributions) are removed from your taxable estate.

Comment: There aren’t many (if any at all) estate tax strategies that allow you to relinquish control over your assets (for gift and estate tax purposes) but still permit you the ability to take the assets back. Of course there are taxes and penalties for doing so, but, nonetheless, 529 plans may still offer powerful tool unlike other financial planning strategies.


As always, if you have any questions or would like to learn more, please contact me.


Steve Shane Casual Small | 301.575.0313

Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.



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