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Subject:  Re: 529 Plans and Gift Taxes Date:  9/20/2013  1:37 PM
Author:  Wradical Number:  119173 of 127753

(JAFO31:) So back to my tax questions (though I doubt any of the foregoign changes the response).

If "contributions to section 529 plans are considered a completed gift of a present interest and so are excluded from the donor's gross estate" even if account is owned by the donor, is the later transfer of wonership also a taxable event?

If yes, as to the entire account value or only the increase in value above the amount originally gifted?

If the entire account value, then the same 14k is being counted twice for gift tax purposes.
(Ira:)I still believe the transfer of the account is a taxable (gift tax) event in its entirety due to the transfer of the rights associated with ownership, but I readily admit that my coclusion is based on logic (always dangerous in taxes) and not any specific experience or review of adjudicated precedents.

I think otherwise, and I'm basing it on my reading of Prop. Regs. 1.529-5, which I can't link to here because it's from copyrighted reference material with editorial content.

But those proposed regs. do state that the initial contribution to the account is a completed gift, as previously noted.

In addition, Section 1.529-5(b)3) provides that a 529 may have a change in designated beneficiary or transfer to a new account for a different beneficiary within the same family, and that's not a gift either. EVEN THOUGH a new beneficiary is involved.

Unfortunately, I'm frustrated in that these reg. sections do not address the specific issue of change in "ownership", from grandparent to parent, but in this case ownership is a strange concept. The "owner" of the account is really more like a trustee of a revocable trust for the beneficiary, and the contribution to the trust was already a completed gift. The "owner" has no beneficial interest. It's more like you're just changing the trustee of a trust, and that's not a gift.

In fact, it's clear that if the beneficiary dies, the account is included in his/her estate. [Generally not an issue, except for the wealthiest of students.] Conversely, if the donor makes a 5-year annual exclusion election and dies during the 5-year period, the unreported portion of the gift is included in his/her estate.

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