I read your monthly newsletter on 529 plans and had a couple of questions.

My wife's grandfather passed away 2 years ago leaving a hefty estate and, despite being a shrewed businessman, he did no proper estate planning other than divide the estate to his 3 kids. His 3 kids agreed to let their mother get the entire estate under the marriage exemption and are now doing appropriate estate planning to lower the tax liability.

They are now considering giving the max gift of 12K to each grnadchild and great grandchild (about 30 total) each year to unload the estate.

My questions are:

1) Could the money be gifted to 529 plans for each person so the interest and withdrawal are tax free (assuming they are used for college expenses) and an adult still controls the funds?

2) Does the 529 plan stipulate that the beneficiary needs to be under a certain age when the fund is started or can adults with kids become beneficiaries?

3) If plans are started for adults with no college plans, when the beneficiary is changed, does the money in the account get treated as a gift to the new beneficiary? This could be an issue if the fund is worth more than the 12K limit for gifts.

Finally, I hear Utah has the lowest fees around for 529 plans. As a Mass resident, do you give up any important advantages if you open a 529 in Utah versus Mass?

Thanks a ton for your advice. The message board is great.

Stefan

Stephan,

A 529 plan is considered an asset of the adult (usually the parent) and the child is the beneficiary. The adult retains control and can change the beneficiary if they wish. Any adult over age 18 can open a 529 and even list themselves as beneficiary. There is no age limit on the beneficiary. So, in theory, if you planned to go to graduate school in a couple of years you could open a 529 for yourself.

529 plans are great for gifting assets out of an estate. You can even "front load" 5 years worth of gifts or $60,000. The donor can't give any other gifts to the beneficiary for 5 years and they must live for five years or the amount gets pro-rated back into their estate. When you change the beneficiary, there should be no federal income tax due although there could be federal gift due (particularly if you change a generation).

There is no state tax advantage for a Massachusetts resident to use the MA plan. Depending what state your wife's grandmother is in, she might receive a benefit for using her state's plan. It's worth checking out. The Utah plan is one that is frequently recommended for low fees and decent performance.

Take a look at www.savingforcollege.com for tons of 529 info and give the Utah plan a call to verify any additional issues. Good Luck! Susan, CFP

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