I talked with clients this week about 529 plans they set up for their grandchildren. We discussed a few items, including what options exist for excess funds as well as transfer of ownership in the event of their passing before the funds are spent. I have discussed the former in a prior post (you can find it here) so today, we will discuss the latter question.

529 plan Owners vs. Beneficiaries

When opening a 529 plan account, you will be asked to name an owner, a successor owner (see below), and a beneficiary. The owner is the person who controls all aspects of the account, including the investment allocation and the assignment of the beneficiary. The beneficiary is the person who will use (ie: benefit) from the funds. Typically, an adult (parent, grandparent, aunt/uncle) is the owner and the school-aged child (child, grandchild, niece/nephew) is the beneficiary. It’s not recommended to list the child directly as the owner as this will give them control of the funds and can complicate the situation moving forward.

Successor Owner

Most plans will also require you to name a successor owner when setting up the account. This is the individual that will assume the responsibilities for the account in the event of the owner’s passing. It’s a best practice to name one (or two) successor owners to ensure the account is always well cared for.

Asset Transfer Upon Owner’s Passing

If a successor owner has been named, the management and control of the account will transfer to this individual. If no successor is named, the path forward varies by plan (529s vary by state – as do the underlying rules, so consult your plan for specific details). However, in some states/plans, if a successor owner is not named, the beneficiary (or their guardian if the beneficiary is still a minor) will become the owner. In other cases, the account may be distributed via a probate process. In many cases, both of these are not desirable fact patterns so be sure to set up a successor owner on your 529 accounts

For those of you with 529 plans, I hope you find this helpful and are able to review your accounts in the near future to be sure they are set-up in a manner that best meets your needs!