529s for Aunts and Uncles

Financial Professional Content I enjoy hearing real-life examples involving 529 plans being used to help send children to college and, at the same time, helping to fulfill legacy desires. I recently received a note from a financial planner with a powerful story concerning a widowed client who contributed over $1 million into 529 plans for her nieces and nephews. If your client base includes at least a few aunts or uncles who do not have children of their own, this story should be of interest to you as well. The planner, David Zalles of Blue Bell, PA, describes an 82 year-old widow with a $3.4 million estate. Federal estate taxes are not much of a concern for this particular client now that the lifetime exemption is $5.25 million. However, she happens to reside in Pennsylvania, where inheritances directed to non-family members and non-lineal descendants are taxed at 15 percent. Pennsylvania has a special provision that shields assets within a PA-sponsored 529 plan from the inheritance tax, even when contributions were made within the previous 12 months. With 17 grand-nieces and nephews, four of whom were already in college, the client maximized her use of the five-year election in making contributions to PA's 529 plan totaling $1,190,000 (17 times $70,000). Inheritance tax savings: $178,500. In addition, she is able to claim a deduction against Pennsylvania income taxes of $14,000 per beneficiary, which at PA's 3.07% state tax rate adds up to another $7,307 of tax savings. Even if she were to die the following day, the client's actions saved over $185,000 in state taxes. As Mr. Zalles describes it, the client "is ecstatic at my plan that will provide her a means of leaving a 'legacy' and save [taxes] at the same time." Financial Professional Content I enjoy hearing real-life examples involving 529 plans being used to help send children to college and, at the same time, helping to fulfill legacy desires. I recently received a note from a financial planner with a powerful story concerning a widowed client who contributed over $1 million into 529 plans for her nieces and nephews. If your client base includes at least a few aunts or uncles who do not have children of their own, this story should be of interest to you as well. The planner, David Zalles of Blue Bell, PA, describes an 82 year-old widow with a $3.4 million estate. Federal estate taxes are not much of a concern for this particular client now that the lifetime exemption is $5.25 million. However, she happens to reside in Pennsylvania, where inheritances directed to non-family members and non-lineal descendants are taxed at 15 percent. Pennsylvania has a special provision that shields assets within a PA-sponsored 529 plan from the inheritance tax, even when contributions were made within the previous 12 months. With 17 grand-nieces and nephews, four of whom were already in college, the client maximized her use of the five-year election in making contributions to PA's 529 plan totaling $1,190,000 (17 times $70,000). Inheritance tax savings: $178,500. In addition, she is able to claim a deduction against Pennsylvania income taxes of $14,000 per beneficiary, which at PA's 3.07% state tax rate adds up to another $7,307 of tax savings. Even if she were to die the following day, the client's actions saved over $185,000 in state taxes. As Mr. Zalles describes it, the client "is ecstatic at my plan that will provide her a means of leaving a 'legacy' and save [taxes] at the same time."