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College Savings Plans Promoted As Estate Planning Tools

  • October 29th, 2002

While college savings plans make an attractive estate planning tool, financial experts advise that they may have serious drawbacks in some situations and investors should proceed with caution, according to an article in the Baltimore Sun.

"Would you do it in every situation? No," said Philip Hayne, an estate planning expert with Principal Financial Group in Des Moines, Iowa. "You have to look at what other options are out there and just try to figure out what makes the most sense."

These savings plans, often called Section 529 plans for the part of the Internal Revenue Code authorizing them, enable people to reduce their taxable estate while earmarking funds for the higher education of a grandchild (or any other family member). Funds contributed to the accounts are usually invested in mutual funds to pay for a child''s college tuition, room and board, or other expenses. Earnings can be withdrawn tax-free if the money is used for college. One advantage of the 529 plans for estate planning is that they can be a quick way of getting a sizable amount of money out of a taxable estate without triggering gift taxes.

But pitfalls can include jeopardizing a child's eligibility for financial aid, problems arising from the premature death of the account owner, lack of protection from creditors in some states, and the impact on the account owner's Medicaid eligibility.

To read the full article, "College savings plan pushed as a tool for estate planning," which appeared in the October 27, 2002, issue of the Baltimore Sun, click here. (This link may be only temporarily available.)

For more on Section 529 plans and other ways to gift funds to grandchildren, click here.

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Last Modified: 10/29/2002

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