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How 529 plans help create estate planning flexibility

For Florida residents, putting money into a 529 education savings plan can be a way to reduce the size of a taxable estate. At the same time, an individual has the power to dictate who the beneficiary of that account will be. Typically, an individual can provide a gift of up to $15,000 in a given year without having to file a tax form. However, individuals can elect to put up to $75,000 in a 529 account at one time without the need to file a tax form.

Married couples can choose to put up to $150,000 in a 529 account without the need to file any tax forms. However, some of that money may be put back into an individual’s estate if the person who made a front loaded contribution dies less than five years after it is made. The same could also be true if the beneficiary of the account passes away.

It is important to note that distributions from a 529 plan that are not used for qualified educational purposes could be subject to a 10% penalty. Those amounts could also be subject to ordinary income tax rates. Therefore, individuals are encouraged to not to put in more money than they believe a child or grandchild might reasonably need.

While trusts can be an effective estate planning tool, they may require that individuals give up control of assets. An attorney may be able to discuss the different types of trust documents that a person might create and how they may help an individual create a quality estate plan. Legal counsel may also discuss the process of decanting an irrevocable trust if that option is available to an individual. That could make it easier to change the terms of such a document.

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