28 Jan Can a trust own a 529 plan for a grandchild?
Q. I have a living trust. If I fund a 529 for a grandchild with the trust as owner, are there any differences than if had I bought it as a grandfather? If my daughter, the grandchild’s mother, was a successor trustee, would that make a difference?
A. 529 plans are college savings plans used to save for qualified educational costs.
It’s a wonderful gift for you to help save towards your grandchild’s education.
A trust can be the owner of a 529 plan, said Dawn Brown, a certified financial planner with Lassus Wherley, a subsidiary of Peapack-Gladstone Bank, in New Providence.
She said the 529 plan will likely require you to disclose and provide supporting evidence, such as the trust agreement, showing who the trustees and successor trustees are so it can confirm who can make decisions about the account.
“If there is more than one trustee named in the trust they will likely take instructions from any of them as long as the trust document says they can act independently,” Brown said. “The trust document will determine who and how changes can be made to the 529 plan since the plan is owned by the trust.”
If you want to change the successor owner named in the trust, it may require an amendment to the trust document which may result in incurring fees for a lawyer to update the trust, she said.
If you opened the account as grandfather instead, the plan would take instructions from you and you would name the successor account owner on the account opening form. You may have more flexibility to make changes as the grandfather because you will simply contact the 529 custodian and ask for form to update the account, she said.
Brown said it’s important to note that if a 529 plan is not owned by a student or parent, it does not have to be included as an asset when applying for financial aid.
“Some private colleges may ask if any funds are available for a student in a 529 plan,” Brown said. “If the trust or you owned it, then it would not appear on the FAFSA as an asset.”
Now, to your daughter. When she, the successor trustee, becomes a trustee, the trust still owns the plan but she would have to be clear on the law to determine if it would be counted as an asset for financial aid, Brown said.
“529 plans do receive more favorable treatment as an asset at only up to 5.64% of the value of parent assets are counted as being available to use to pay for college,” she said. “A student has 20% of assets included as available to pay for college.”
Brown said distributions from 529 plans can be counted as income for the student, therefore the timing of distributions needs to considered carefully.
Email your questions to moc.p1606339937leHye1606339937noMJN1606339937@ksA1606339937.
This story was originally published on Jan. 28, 2020.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.