On June 6, 2013

Colorado residents who have saved money for college in 529 plans may want to check who the successor is on the plan, if a successor is listed at all. Many owners of the tax-advantaged savings plans may not be aware that 529 plans are transferred to successor owners in the event of the original owner’s death. If the owner didn’t choose a successor, the plan could be transferred to someone who won’t use the money for its intended purpose.

Owners of 529 plans who have estate planning concerns can contact their plan sponsor to obtain a form that allows them to name a primary successor and a contingent successor. If the owner passes away, the funds in the 529 will be transferred to the successor. The successor owner has all the same rights and decision-making power that the original owner had, so it’s important to name a successor who is like-minded with regard to the money’s use.

If no successor owner is named, the account will transfer to the plan’s beneficiary when they turn 18. This could create a new set of problems, especially if the plan is sizable. An 18-year-old may not have the discipline to use the money for its educational purpose. If the beneficiary is under 18, a court may assign a successor until the child becomes an adult. Grandparents are not required to name the beneficiary’s parents as successors. One expert said he has encountered situations where a grandparent did not trust the grandchild’s parents with 529 plan assets. In that case, it may be wiser to choose someone else as a successor owner.

Naming a successor owner on 529 plans is an important part of the estate planning process, along with preparing estate documents and naming beneficiaries on accounts and policies. An attorney with estate planning experience could help an individual navigate their state’s specific estate planning laws and organize their accounts, policies and documents to best reflect their wishes.

Source: US News & World Report, “Make College Savings Accounts Part of Estate Planning“, Reyna Gobel, May 31, 2013

Categories: Estate Planning

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