People want to ensure that they are passing on the majority of their estate to their loved ones without losing a significant amount to estate taxes. While the estate tax exemption has risen in recent years, many still look for ways to plan their estate that can provide the greatest level of protection possible and allow their loved ones to benefit from the assets they have accumulated. Irrevocable trusts are one option, but there are others as well. 529 plans are well-known for how useful they can be in planning for education, but they can also hold great value as an estate planning tool.
Why people create irrevocable trusts
People can often reduce their federal estate tax burden by making gifts during their lives to irrevocable trusts. These are trusts that cannot be modified or revoked by the grantor. Generally, the primary rule used in determining whether a trust can prevent a tax burden is that the trust can no longer be under the control of the grantor.
Grantors have options to prevent the trust from being squandered, including by providing powers of appointment to beneficiaries or including a trust protector in the language. However, many people are wary of relinquishing so much control over their property.
Benefits of a 529 plan
For these people, 529 plans may present an attractive option. Many people want to support future educational opportunities for their loved ones, so the limitation to education costs may not provide much of a barrier. With a 529 account, the owner may remove funds from their estate while retaining the right to change the beneficiary throughout their life.
These accounts may provide additional flexibility for people looking for options that can protect their estate from taxation. An estate planning attorney may provide advice and guidance on using 529 accounts, trusts and other options.