Changing beneficiaries and generation skipping tax

[jmiller]

We have a client who has 2 children without social security #'s. They will get them in 6 months. We would like to set-up 529 plans for the children now, using one parent as owner with the other as beneficiary, and then changing them to the children after they gets their social security #'s. Fidelity (New Hampshire) has said that this is viewed as a "sale" when we change beneficiaries, and they may be exposed to a generation skipping tax. Has anyone heard of this? Are their any other fees for beneficiary changes? Thank you.

[drew]

There is no GST when one goes down merely one generation.

Correct, when you change a beneficiary it is deemed as a gift of the beneficiary to the next. So if you set up a 529 for say your wife then when you move it downawrds then its deemed as her gift--so she needs to watch the 10/50K rules --and you can splip it so you can effectively move 40/200K to 2 kids in one bite. Unlimited if you set up 529 for yourself.

So, yes, you can set it up now to get gifts into 2001's exclusion

[drew]

There is no GST when one goes down merely one generation.

Correct, when you change a beneficiary it is deemed as a gift of the beneficiary to the next. So if you set up a 529 for say your wife then when you move it downawrds then its deemed as her gift--so she needs to watch the 10/50K rules --and you can splip it so you can effectively move 40/200K to 2 kids in one bite. Unlimited if you set up 529 for yourself.

So, yes, you can set it up now to get gifts into 2001's exclusion