For many families, one of the most meaningful financial goals is helping children or grandchildren afford an education. Whether it’s college, private school, or even future graduate studies, the desire to create opportunity through education is often a central part of long-term planning.
In our estate planning practice, this goal comes up frequently. One of the most effective tools we recommend is the 529 plan. Not only do these plans offer significant tax advantages, but they can also be thoughtfully integrated into a broader estate plan, including ownership by a trust.
What Is A 529 Plan?
A 529 plan is a tax-advantaged savings vehicle designed specifically for education expenses. These plans are sponsored by states and allow funds to grow over time for a designated beneficiary, such as a child or grandchild.
Contributions are made with after-tax dollars, and the funds are thereafter invested and grow tax-free. Withdrawals are tax-free when used for qualified education expenses. Qualified expenses generally include tuition, room and board, books, and certain technology costs. In some cases, 529 plans can be used for K-12 tuition and limited student loan repayment.
Why Families Are Drawn To 529 Plans
529 plans are popular because they combine flexibility with strong tax benefits:
- Tax-free growth and withdrawals for qualified expenses
- High contribution limits, making them useful for long-term planning
- Control retained by the account owner, not the beneficiary
- Ability to change beneficiaries within the family if circumstances change
For grandparents, 529 plans can be a powerful way to contribute to a grandchild’s future while also engaging in strategic gifting.
Can A Trust Own A 529 Plan?
One aspect of 529 plans that is often overlooked is who owns the account. While many plans are owned individually (for example, by a parent or grandparent), a trust can also serve as the owner of a 529 plan. This opens the door for more sophisticated planning.
When a trust owns a 529 plan:
- The trustee controls the account, rather than the individual donor
- The plan can be managed in accordance with the terms of the trust
- It allows the 529 plan to be integrated into a broader estate and legacy plan
Benefits To Trust-Owned 529 Plans
Additional benefits to a trust-owned 529 plan include:
- Tax-Benefits Across Generations. A trust-owned 529 plan can be structured to benefit multiple generations. If funds are not fully used by one beneficiary, they can continue to grow and be used without necessarily triggering additional gift, estate, or generation-skipping transfer taxes, depending on how the plan is implemented.
- Beneficiary Flexibility. If the original beneficiary does not need all the funds, the trustee can change the beneficiary to another qualifying family member, such as a sibling or a cousin.
- Rollover Options. Under the SECURE 2.0 ACT, up to $35,000 of unused 529 funds may be rolled over into a Roth IRA for the benefit of the designated beneficiary, subject to applicable requirements and limitations.
- Authorization to Manage Investments. The trustee should have the ability to have investment powers and to make the selection among the various investment options in a 529 plan.
Final Thoughts
Saving for education is one of the most common and most meaningful goals families have. A 529 plan provides a tax-efficient and flexible way to achieve that goal, and when appropriate, structuring ownership through a trust can add an additional layer of control and protection.
As with most estate planning strategies, the key is customization. What works best will depend on your family dynamics, financial goals, and overall estate plan. If you’re considering setting up a 529 plan, or what to explore how it fits into your estate plan, contact the experience estate planning attorneys at Cavitch Familo & Durkin to discuss the structure that best meets your goals.