The looming “fiscal cliff” has generated no shortage of headaches for affluent families that hope to pass assets along to their descendants. Under current law, the lifetime exemption on the estate and gift tax for individuals will drop at the end of the year from $5.12 million to $1 million, a fact that has many people scrambling to rearrange their estate plans before the New Year’s Eve ball drops.Alison Seiffer for WSJ
But as MarketWatch’s AnnaMaria Andriotis points out today, there’s one potentially attractive estate-planning tool that many investors are neglecting: The 529 college-savings plan. Most such plans have a total contribution limit of $250,000 to $350,000 per beneficiary (just about enough to pay for four years in the Ivy League, last time we looked). And unlike with some other estate-planning vehicles, the giver retains a fair amount of control over the money. “Account owners can withdraw any portion of the balance in their 529 plans if they ever need it,” Andriotis writes (though they may owe taxes on any investment gains). And the giver can even change beneficiaries if the original heir winds up not needing some or all of the funds.
It sounds like a pretty sweet deal, but Andriotis points out that 529 plans are relatively underused: about 10 million investors currently have one, and only about 35% of parents saving for college are using one, according to Financial Research Corp.