Planning for your children’s future is about more than just saving for a college education. It’s also about ensuring the future of that savings. Parents who start tax-advantaged education savings plans, such as 529 plans, without naming a successor run the risk of having a stranger control that education funding if they pass away.
The successor is the person who takes control of the tax-advantage education savings account if the owner, typically a parent, or the person who opened the account, either dies or is otherwise rendered unable to make decisions.
When starting a 529 plan, parents should ask for a form to name both a primary and secondary successor. If the owner dies, control passes to the primary successor, who then retains all the rights of a traditional account owner, making decisions regarding how the money is spent and how it is ultimately used by the beneficiary. In this case, the successor also has the option to change the beneficiary.
If the owner of a 529 plan passes away without naming a successor, control of the account passes to the beneficiary. If the beneficiary is under 18 years of age, the state may assign someone to make decisions regarding the account until the beneficiary is of legal age.
In this situation, parents may worry that their wishes for the education funds will not be followed. Upon turning 18, a beneficiary gains full control of the money and could use it for any reason; not necessarily for an education.
College planning and estate planning can go hand-in-hand. Parents can set specific rules for the 529 fund, including frequency and amount of allowed withdrawals, and restrictions on what the money can be used for. The executor of the parent’s will can then distribute those withdrawals to the beneficiary.
Planning for your child’s support and education can be a complicated process, and the experienced attorneys at Bratton Scott can offer sound advice and assistance when it comes to drafting estate documents that will care for school-age children should the need arise. Contact us at our Haddonfield, NJ office at (856) 857-6007 for a consultation about your personal situation.