Taxing Decisions: Estate Planning & Battling Rising Education Costs.

• Author: Foss, Mary Kay
• Position: Estateplanning

Many clients are concerned about upcoming estate tax changes. Now is the time to use planning to avoid shrinkage in assets due to estate taxes. At the same time, there's a desire to benefit grandchildren or children facing expensive higher education costs. Another desire is to control assets as long as possible. It's a good time to talk about solutions to these problems.

Consider Sec, 529 Plans

Qualified Tuition Programs (known as Sec. 529 plans based on the IRC Sec.) have been around since 1997. The plans allow amounts to be put away for higher education, the funds grow tax-free within the fund and are not subject to income tax if they're used for a qualifying purpose. For many years, funds had to be used only for higher education including books, equipment and lodging. In 2017 they were expanded to allow withdrawals of $ 10,000 per year for private school primary or secondary education.

The SECURE Act (passed in December 2019) took the plans a few steps further. Now they can be used for a qualified apprenticeship program, including fees, supplies, textbooks, equipment and required tools. The apprenticeship program must be registered and certified by the Department of Labor, which provides a search tool to determine whether an apprenticeship program is eligible.

SECURE also allowed $10,000 of the 529 funds to be used for the repayment of student loans--to be applied against principal and interest. The $10,000 is not an annual amount, it is only available to the beneficiary of the Sec. 529 plan and any siblings.

Establishing a 529 plan requires a gift to the beneficiary of the account (the 529 account has only one beneficiary), but there's a benefit there. Each individual establishing a plan can use five years annual exclusions in one year to make the gift nontaxable. The current exclusion is $ 15,000 per donee so that $75,000 can be put into the plan in one year without dipping into the lifetime exemption amount of the taxpayer. For a couple, that's $150,000 in the year the plan is established. The maximum amount that can be used to fund a plan is established by each plan but it's at least $200,000 per beneficiary for all plans--generally more than $300,000. If a couple were to put $200,000 into a 529 plan for a granddaughter for example, they would each dip into their lifetime exemption for only $25,000. Reducing your estate without being hurt significantly by the gift or estate tax is a good deal.

But there's more. The individual...