529 Plans As Estate Planning Tool

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Goodman60
Posts: 238
Joined: Mon Jun 03, 2013 8:53 pm

529 Plans As Estate Planning Tool

Post by Goodman60 » Wed Jan 17, 2018 3:23 pm

I realize that, at least until 2025, an even smaller group of people will be subject to Federal Estate Tax. And after that, under the recently enacted current law, it will still be a small group.

That being said, it seems that 529 Plans could be a really good way to legally hedge Federal Estate Tax exposure for those with such exposure. Correct me if I'm wrong: Once funded with, say, $15,000 per year ($30,000 for a couple) per beneficiary (perhaps with front loading $75,000 or $150,000 and living 5 years), the account(s) still belongs to the owner for control purposes, but is considered out of the estate of the owner for Federal estate tax purposes. Could not someone set up many of these for various friends and relatives, and if they ended up needing the money later, pull it back and pay the tax and penalty on the gains? It sounds like the accounts can sort of function as a financial/estate tax buffer zone. As long as the assets are in there, you can pull them back if needed. But if you die, they pass to the beneficiary out of the estate value (no estate tax) of the owner. Are there any sites or books that have dealt with ways to maximize this unique type of account?

jj
Posts: 180
Joined: Sun Mar 04, 2007 9:44 am
Location: Texas

Re: 529 Plans As Estate Planning Tool

Post by jj » Wed Jan 17, 2018 11:20 pm

Goodman60 wrote:
Wed Jan 17, 2018 3:23 pm
I realize that, at least until 2025, an even smaller group of people will be subject to Federal Estate Tax. And after that, under the recently enacted current law, it will still be a small group.

That being said, it seems that 529 Plans could be a really good way to legally hedge Federal Estate Tax exposure for those with such exposure. Correct me if I'm wrong: Once funded with, say, $15,000 per year ($30,000 for a couple) per beneficiary (perhaps with front loading $75,000 or $150,000 and living 5 years), the account(s) still belongs to the owner for control purposes, but is considered out of the estate of the owner for Federal estate tax purposes. Could not someone set up many of these for various friends and relatives, and if they ended up needing the money later, pull it back and pay the tax and penalty on the gains? It sounds like the accounts can sort of function as a financial/estate tax buffer zone. As long as the assets are in there, you can pull them back if needed. But if you die, they pass to the beneficiary out of the estate value (no estate tax) of the owner. Are there any sites or books that have dealt with ways to maximize this unique type of account?
Back when the estate tax limits were $1M, yes I did consider this tactic. Since estate tax exemptions have increased I would think this an unnecessary complication. Maybe others have different ideas....
...it is madness to risk losing what you need in pursuing what you simply desire. Warren E. Buffett

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