Section 529 Educ. Plan--Anyone familiar with

[disneyfanatic60]

My MIL recently passed away and she had a 529 account set up for both of them. She was listed as the owner and the kids as the beneficiary.

What happens to these accounts now that she has passed away? They both are over 18 and both of them are out of school and have no education expenses. (Not sure why she didn't give this to them when they were in school????) Does the money get forfeited? If they do get the money, will they be responsible for all penalties and taxes on this money.

If I am reading the paperwork correctly, my SIL is the designated owner if my MIL died. What does that mean? My SIL just gave us the paperwork and didn't say anything at all. We knew my MIL had money in an account for the kids to receive when she died but were never given any details.

Help----I am so confused?

 

[rbuzzotta]

Although I don't know much about these accounts, Dh handles them all. We have 3 for our kids and i believe they can NOT be used for anything aside from education!!! I hope someone can elaborate more for you and I hope since your kids are not in school anymore, them can somehow benefit from them (financially).

 

[Toby'sFriend]

Well, if they use the money for non-qualified expenses, there will be a 10% penalty on the earnings of the account. The earnings will also be taxed at the Account Owner's tax rate, which I guess is now your SIL. If your SIL is new new owner of the account, she will most likely have to sign a Withdrawal request.

Alternatively, the beneficiary could be renamed - ie if you had Grandchildren your children could name them as the new beneficiaries on the account.

I'm sorry about your MIL.

 

[Jenn Lynn]

I think it would be a good idea to just leave them alone until your kids have kids and rename them like Toby'sFriend said. Do your kids know they exist? If not I would just keep the paper work and give it to them on the birth of thier first child.

 

[disneyfanatic60]

Well I guess my question was a mute point.

I called a number I found on the little paperwork we just received. According to them, despite the fact that the paperwork shows a $5,000 opening contribution, there is apparently a "zero" balance on both of their accounts. They searched through their records using my kids names and social security numbers and the only two accounts that come up are "zero."

I can also see that regardless my SIL would now have control of their accounts. It was in my DH's name and crossed out and made my SIL. No surprise--my MIL did absolutely everything for her and her two children. She chose to be a "distant mother/grandmother" to my DH/Children. Other than a visit every few years and a call on Xmas, she really never was part of their lives strictly by her choice. We tried over and over and gave her plenty of opportunities. Don't get me wrong, we did not have a bad relationship but she just was never, ever there.

Unfortunately, the last time she was home a few years ago she told my then 20/17 year old that she was giving them each $5,000. I was very upset because I knew there was a strong possibility it would never happen. She made it appear to them checks "were in the mail." A year or so later, she told my DH that she was placing the money into education accounts "despite" the fact she knew they would both be graduated before the money could be used for such purpose.

Now that my SIL has control, she'll never agree to change the beneficiary to their future children, etc. She's been "evasive" about this with us for years despite the fact she was executor of the estate and had POA. During the funeral breakfast out of left field, she announced that my MIL believed in education and made sure her grandkids could afford college. I knew right then and there something was "rotten in Denmark."

My gripe---why hurt my kids! They did nothing to deserve this taunting over these accounts for many years that both my MIL/SIL did. If they knew nothing, then nothing lost. They wanted a Grandmother to be in their life, that's all. Why did she have to go and hurt them for no apparent reason?

So they buried the last remaining Grandparent they had and this is what they end up with. My heart just breaks for them. They are good kids and never deserved this.