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Subject:  Re: 529 Plans and Gift Taxes Date:  9/13/2013  3:43 PM
Author:  JAFO31 Number:  119139 of 127549


<<<If an immediate transfer the parents (as owner) and to the grandchild (as beneficiary) would trigger only one gift tax, then a subsequent transfer of account ownership would not appear to constitute a taxable gift, but I know enought o know that logic and taxes are only sometimes related.

Any thoughts from the resident tax pros, or any other readers?>>>

"I would expect that every transfer of "ownership" would constitute a taxable gift."

OK. That is sort of what I expected. I was hoping, however, than given that the grandparent has to file paperwork to accelerate annual exclusion amount meant that taxes had already been paid on the gift, and that the transfer of the ownership was more akin to appointment of a replacement trustee rather than a second gift.

"Transfer of assets to a beneficiary do not constitute a taxable gift because the tax code (Section 529) excludes the transfered amount from gift tax provided certain conditions are met."

Then why is there a provision allowing for a larger contribution in a single year (5x the annual exclusion amount) provided that the grandparent files appropriate paperwork allowing accelerated gifting of annual exclusion amount?

If transfer of assets to a beneficiary do not constitute a gift, why can a grandparent not contribute $100,000 to a 529 plan for a grandchild and not owe any gift tax?

"The "double gift" question rests on whether a contribution to a 529 plan owned by someone other than the donor constitutes a two-step transfer (to the owner and then to the plan) or is a direct transfer to the plan. I think it would be a stretch for the IRS to insist on the two-step interpretation."

This is what I also expected, but then why does a time separation generate a second tax when a simultaneous transaction would not? Is that not elevating form over substance?

"On the other hand, transfer of plan ownership involves transfer of significant rights - namely, the right to determine how, when, and to whom to distribute the assets. This would certainly be a taxable transfer."

Ok. Then if the goal is transfer from the grandparent to the parents before it is used, to avoid reporting it as grandchild's income (and to avoid using any lifetime credit), then I guess the usual rules of gifting apply --- transfer of the annual exclusion amount split over two years (given that is is now September) and to each of the parents of the grandchild . . . 14k in 2011 to one parent (to minimize amount reported on FAFSA filed in January or February 2014) and then 28k to both parents in 2014 after the FAFSA is filed would transfer 42k in within the next 4-5 months. Possible slightly more gifted in 2013 to the second parent if the total amount to be gifted in greater than 42k but less than 56k, or alternatively, simply transfer the amount in excess of 42k in 2015 after FAFSA filing (presuming it is less than 28k, less than 60k total in 16-17 months).

Regards, JAFO
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