In recent years, the 529 Plan has become a very popular college savings alternative among investors. The account’s investments grow federal and typically state tax-free as long as the money is used to pay for qualified higher-education expenses, including tuition, fees, books, supplies, and room and board. And while 529 Plans should be primarily used for college planning, many do not realize they can also play an integral role in estate planning. In fact, any assets you contribute to a 529 Plan account are removed from your federal taxable estate and are treated as gifts for tax purposes, which mean they qualify for the $11,000 annual gift tax exclusion ($22,000 per couple).

Here are some additional estate-planning benefits:

Control: Although the assets gifted to a 529 Plan are no longer considered part of your federal taxable estate, you continue to retain control over investment, withdrawal and beneficiary decisions. You reserve the right to name a new beneficiary if the original beneficiary receives a scholarship or pursues interest outside academia, and you determine how much to contribute. Additionally, there is no minimum distribution age and no income limits to participate.

Accelerated gifting: Unique to the 529 Plan, the IRS allows donors to make five years’ worth of tax-free gifts in one year – but only once every five years. That means you can contribute up to $55,000 at once ($110,000 per couple), which can help minimize potential estate tax obligations. It is important to note that if the donor dies within the five-year period, some gifts may be brought back into his or her estate.

Successors and trust ownership: Most state qualified tuition programs permit a trust to be an account owner of a 529 Plan. (However, a trust cannot be the beneficiary.) With a trust, there is continued control after death, as the trustee is the clear account owner and the 529 Plan’s assets may be safe from court judgments and inheritance battles, depending on the terms of the trust. Trusts also can contain specific directions on how the trust funds can be used.

For more information on 529 Plans and their estate-planning benefits, please feel free to contact me.