Financial & Estate Planning

Many people have created revocable living trusts to hold their assets. If you have such a trust, should you use it to hold a 529 college savings account for your children or grandchildren?

Generally, that’s not necessary if your only reasons are to specify a successor who’ll own the 529 account and keep the account from being subject to probate. Instead, you can own the account yourself and designate a successor on the beneficiary form provided by the 529 plan sponsor. At your death, the account will pass to the designated successor without going through probate.

There may be some exceptions, though. Suppose John Smith names his brother Jim as successor owner. John might want to make certain that Jim can’t withdraw the 529 account funds for Jim’s personal use after John’s incapacity or death. In another scenario, John may want to make certain that any 529 funds not spent on higher education for the current beneficiary are subsequently spent on another specific beneficiary’s higher education.

Such instructions can be included in a revocable trust to provide greater certainty that your wishes are followed. If you have such wishes and a revocable trust, you might want to have the trust own your 529 account. Be sure that your trust includes the appropriate language.