529 Plans & College Planning

Section 529 Plans have become a common estate planning technique to allow parents and grandparents to fund the education of their children and grandchildren. Parents or grandparents may not wish for funding of qualified tuition plans to terminate if the parent or grandparent becomes incapacitated. Using a durable power of attorney, a principal may authorize an agent to continue to fund qualified tuition plans. Special provisions allow donors to contribute up to five years’ worth of annual gift tax exclusions in one year without incurring gift tax.

Instead of funding a Section 529 plan, donors can pay an unlimited amount of tuition directly to an educational institution without incurring any gift tax. These payments are not subject to the annual gift tax exclusion. However, amounts must be used for tuition and may not be paid for room and board or other college expenses without using the annual gift tax exclusion or lifetime gift tax exemption.