Preserve Your Legacy

Estate Planning | Elder Law | Special Needs Planning



Some people who are in a position to give life-changing amounts of money to their loved ones may take pause. If you were to give a young person a significant gift or inheritance he or she may see no reason to get an education and make an individual mark on the world.

One thing you could do if you felt this way would be to convey assets into a 529 college savings plan for the benefit of a future college student. And, if it is an issue you may actually be able to gain some estate tax efficiency in the process.

The way that it works is you put money into the account in much the same way as you would a 401(k) account. The assets that have been placed in the account are invested, and the growth is not subject to taxation as long as the student does wind up using the funds for college expenses.

From a tax perspective you are reducing the value of your taxable estate as you place money into the 529 account. However, you have to concern yourself with the gift tax because your contributions into the account for the benefit of another are considered to be taxable gifts.

The good news is that there is a $14,000 per year, per person gift tax exclusion that exists outside of the lifetime unified gift/estate tax exclusion. As a result you could fund the 529 account with $14,000 contributions each year to stay within this exclusion amount.

Ultimately you would be transferring assets out of your taxable estate for the benefit of a loved one in a tax-free manner