529 Plans and Estate Planning
By Kelly Rains Jesson
529 plans are named after IRS Code Section 529. A person can make “gifts” into an investment account that is then used, in the future, by minors or young adults to attend college or a private K-12 school. There are a few benefits. First, the money that goes into the investment account grows and earns interest income that is not taxed when it is withdrawn in the future per the account terms. Theoretically, if a parent started early, they could gift a small amount to a 529 account and have a much larger amount available for their child when the child enters college. Second, the value of the account is not considered part of your taxable estate. A 529 account offers the ability to control what a beneficiary spends the money on instead of gifting it to them directly. Plus, someone can make gifts to a beneficiary via a 529 account when they’re under the age of 18. You wouldn’t want to give a ten-year-old a few thousand dollars!
North Carolina 529 plans allow the owner (also called a “participant”) to designate a successor owner, who will take over the account in the event the primary owner dies or is incapacitated. If the primary owner does not make this designation, North Carolina allows the estate to become the owner. The estate can then transfer to another owner. We typically recommend our clients designate a successor owner so they can have peace of mind that the new owner is someone who they’d want to take over. Give Jesson & Rains a call if you have any questions!
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Kelly Rains Jesson