As the cost of educational expenses continues to soar for California residents, it is clearer than ever how important a college fund can be. The 529 college savings plan is one way to address this issue. Parents or grandparents (or anyone) can create a 529 plan to help a loved one pay for education. As the nation's current economy proves, it is never too soon to start a college fund. While the 529 plan is effective, it can also be problematic if not setup correctly.
One of the biggest and potentially disastrous issues associated with the plans is what will happen to it if the creator dies. If a successor is not named, then management of the fund could land in the hands of a total stranger. If named, a successor will step in and inherit control of the 529 account upon the account creator's death.
Naming a successor is not automatic. The person creating the plan must ask for the appropriate form in order to name a primary and a secondary successor. However, this might not be enough to ensure the money is used for education. If the beneficiary is at least 18 years-old, he or she may inherit control of the account and decide to use the funds for something else. Even a named successor may not follow the wishes of the account maker.
How can you be sure the plan will be used for education? One way to improve your odds is to include the 529 as part of your estate planning. Specifically, you can have your estate or will executor take over control of the 529 if you die. In turn, your executor can make sure the account is used exclusively for education. If you are interested in including 529 plan instructions in your estate planning, you should arrange to consult with an estate planning attorney in your area.
Source: U.S. News & World Report, "Make College Savings Accounts Part of Estate Planning," Reyna Gobel, accessed May 27, 2016