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Options for Ownership of Savings Plans

If you are holding Section 529 college savings plans, possibly for your children or grandchildren, chances are that you’ll accumulate large sums in such accounts. If so, these assets deserve careful estate planning.

Generally, title to a 529 account will be held by one person because joint ownership is not permitted. Most plans permit the account holder to designate a backup who’ll take over in case of death or incapacity. Thus, you should name a replacement account holder. Some plans even allow you to designate a contingent backup to be named in case, for example, the account holder and the primary successor die in a common accident.

If no successor is listed, and the account holder dies, the former owner’s executor will become the new account holder. No matter who takes over, the new account holder usually will have the same powers over the account as the original owner.

He or she can shift funds among different 529 plans, change the beneficiary to another family member, and even take the money back, if needed. (Taking a refund will mean paying income tax and a 10 percent penalty on any earnings.) In some plans, a successor owner can divide the account among two or more beneficiaries.

Presumably, if an account holder becomes incapacitated and no successor has been named, control of the 529 accounts will pass to a guardian or the holder of a durable power of attorney. Therefore, if you invest in a 529 plan, your durable power of attorney should specifically permit gifts to your account.

Additional language may be necessarily to precisely spell out a power of attorney’s power over 529 plans. For example, suppose your son has three children and your daughter has one child.

Should your power of attorney include an equalization provision so your daughter’s side of the family gets the same as your son’s side?
Alternatively, do you want each grandchild to receive the same amount for higher education?

Those questions should be answered within your power of attorney.