Wednesday, June 19, 2013
529 plans, or tax-advantaged education savings plans, allow parents to submit a form naming primary and secondary successors. Parents that pass away without naming a successor are at risk of having the state assign someone they don’t trust to make decisions on how to invest the money and how the beneficiary can use the funds. Or even worse, if the beneficiary is over 18, the beneficiary becomes the account owner and has full power to use the education funding for whatever purpose they like.
Parents typically name spouses, close relatives, or trusts as successors. However, some parents decide to have the executor of their will distribute 529 plan withdrawals to ensure these college savings are used the way they intend. Whichever option a parent chooses, they should be aware of any state restrictions on ownership transferability that may subject the plan to tax.
See Reyna Gobel, Make College Savings Accounts Part of Estate Planning, U.S. News, May 31, 2013.