0:01 uh trust in Estates weekly sorry uh last minute shift there I I had my music playing and uh uh I forgot to turn it off before I started the broadcast uh it's Monday morning 10: am here on the West Coast and and California made the Wall Street Journal because of all the rain we've been getting which is um I don't want to say it's unseasonable it's it's it's welcome from my perspective um love the rain always um and uh you you if it starts raining really hard you'll be able to hear it in the background here I think a little bit um but in any
0:37 event uh glad to be here uh with you today and and U um always uh our purpose is to talk about those things related to probate Estates trusts all of that from from the estate planning perspective to Administration and settlement all of those issues for ourselves as individuals who need to go through this process but also as professionals who help people um with with this uh with this whole situation so it can be um difficult and uh and and it is the kind
1:13 of thing where um you're you're you're definitely want to going to want to get some some expert advice so uh um and and I I I you know hopefully you'll find good practitioners unfortunately that's not always the case but uh um in event uh that's uh that that's that's what we're here to do so today and uh I realize I I didn't set this there okay there it is good um so today I'm going to talk about something called a 529 plan now uh if if you're like me um you may
1:52 not ever have heard of this um for for a long time um I learned about it because my daughter's grandmother um uh or grandfather I think actually set up a 529 plan for her a number of years ago um and um very very generous of them it was part of um when they were doing their estate plan uh and and it's it's it's a it's a great uh tool um to to use um in um seeing to
2:30 that um children or grandchildren um are able to be educated so I'm going to start the presentation here okay so um I I call this presentation preparing for college expenses with a 529 plan now in some cases a 529 plan um can be used for non- col education K through 12 okay and as you're going going to see that varies from state to state um but in any event um it's I
3:06 think it's main it's reasonable say its main focus is um uh as as a mechanism for funding a college education so okay we got a little bit of a lag whenever it Reigns in California I think the internet lags so as as is the case with everything we do on the way to W shows they're based on the three pillars of attainment and those shows tend to focus on the finances Realm of the Pursuits pillar but inevitably we get involved in relationships in this case
3:42 uh family probably is the most um uh closely tied to 529 plans um and sometimes we get into some self issues identity Health mindset those sort of things if you want to know more about the three pillars of attainment please please go to our YouTube channel youtube.com/ at the way to wow and there's a there's a whole show uh talking about the the three pillars of attainment okay so let's start out first of all by by by discussing what is a 529 plan okay so first of all it's a state
4:19 sponsored plan not a federal government plan okay so as such there the rules vary from between you know California Nevada um you know Arkansas Maine each state has its own little twists on it okay I'm going to show you in a in a few minutes a map that that'll that that gives you an idea of of some of the differences state by state okay and um it's the it's it was designed to
4:56 encourage people to save uh money for what are called qualified educational expenses now I'll I'll talk about what those are um in in a few minutes okay it's tax advantaged meaning that there you can get some tax savings for using this particular mechanism okay now the tax advantages you get also vary by state so um if I mention any particular tax advantage um it would do not assume
5:33 that that's true of the state in which you live um these uh have to be um looked at state by state okay next um oh I'm sorry let me let me what the tax advantages are is that um oftentimes the um contributions you make to a 529 plan are tax deductible okay so you're able to make contributions on a pre-tax basis okay and reduce your o your overall tax
6:10 payments while at the same time setting aside money um for the uh for the person's education and the earnings I.E the the you invest the money and and those Investments um grow so the earnings on on the invested money also grow taxfree okay so um it's it's a it's kind of similar to a 401k okay and and and typically a 529 plan will offer you kind of a menu of
6:47 investment options that that you can choose from okay and they're they're sponsored by various different companies um Vanguard Franklin Templeton um I'm I'm I'm sure there's others I'm not here to recommend any particular company um at all um I just mentioned those those two um uh because I happen to know U like my daughter's her hers is is is a Vanguard plan um that's not a recommendation for Vanguard nothing against them nothing for them I'm just saying that's who hers is with um and I received some information from Franklin Templeton on their plans um so
7:25 I know they do them as well okay um you another aspect of a 529 plan is you can change the beneficiary okay so um let's say you've got uh two children okay and you set you set one up for each of them okay and then it turns out that one of your children decides that he doesn't want to go to college um he's more interested in in working with his hands and and what he wants to do is um be a mechanic for
8:00 um uh like you know um mercedesbenz um working on these very complex uh cars um and and so you know the he's not going to use the 529 plan funds so you can change the beneficiary and and you could make um um somebody else the beneficiary of that money um I'm not sure you can have the same beneficiary on two F 529 plans that would be something for you to check out or you know combine two plans those are all um nuances that you would want to
8:36 check with the person who's advising you on the 529 plan okay and there are also so and then finally there are some gift tax uh benefits so um um there's something called the lifetime exemption which right now is I believe around somewhere between 12 and $1 13 million okay so the money you contribute to a 529 plan does not reduce that lifetime exemption okay so um this is this is
9:13 money that you can essentially give to somebody else without reducing how much you can give um in other ways okay all right uh let's move on all right so I'm going to go to this um uh this website right here smartasset.com College savings plans 525 Plans by state and here let's go to share screen and share okay so you should be seeing now um this this this
9:50 website um it's a smart asset I found it looking around for something that would highlight so here's 529 Plans by state you can see this map here okay and the um the um the states in in coded in blue you can see have various num different various numbers of types of plans and by the way Washington DC um all um all have at least one plan um so um the the
10:27 darkest blue which includes California Utah Wisconsin Etc okay um they sponsor one plan each so I'm in California let's click on California okay so um it's called scholar the scholars share plan um and here you can click um find an advisor the minimum contribution is $25 the maximum $529,000 okay so that would pay for well I don't know if it's going to pay for medical school these days but it'll
11:03 certainly pay for you know an undergraduate degree okay um and um it gives you instructions on how to enroll how much it costs to do it the tax benefits um for doing it um investment options um and you know how to withdraw money Etc okay so and then um um these are other 529 plans we'll talk about that a a little bit later okay so let's let's go back to the map okay let's say you live in Florida okay so
11:40 there's Florida so you can click on either the map or the link and Florida has um it looks like um two types of plans there's the Florida 529 savings plan and the Florida Prepaid Plan okay and again you have a link here you can find an advisor um it has a different information okay there's there's no minimum contribution maximum contribution is 418,000 so it's lower than California okay here's some pros and cons um Investment Portfolio with under underlying funds that blah blah blah High maximum contribution limit
12:16 cons moderately High fees that's for the Florida 529 savings plan um the Florida Prepaid College Plan okay so it locks in tuition at today's rates PL options include dormatory expenses um scholarships may qualify you for a refund okay of the money uh cons benefits may not cover all necessarily educational expenses the beneficiary parent or legal guard must have been a Florida resident for the past 12 months okay so for whatever state you live in okay this map will give you
12:54 information on um various options so let's look let's look at one of these that have four plus plans Nevada okay so Nevada's got one two 3 4 five different plans right um it's got the ssga up promise 529 plan here's the Vanguard 529 College Savings Plan here's the USA 5 USAA 529 College Savings Plan um the Nevada prepaid tuition program and the putham 529 plan for America okay these are all um ones that are available um to
13:32 uh that are available in Nevada minimum contribution $15 maximum 500,000 okay you can find an advisor etc etc okay so no matter where you live in the United States or um the District of Colombia okay you um you can find um um you know you can find a plan okay all right so let's let's stop sharing and go back here okay so um now you so whatever state you're in
14:10 generally speaking um you are going to be um dealing with the laws in that particular State however there are what are called tax parody States so Arizona Arkansas Kansas Maine uh min OTA Missouri Montana Ohio and Pennsylvania 1 two 3 four five six seven eight nine there's nine tax parity States now the advantage of a tax parody state is you can open a plan in another state and get
14:45 the the tax benefits of the plan in that state in your tax parity State okay so um I I guess it's it's good to live in you know Arizona Etc right they offer you um more flexibility in terms of how you can take advantage of a 529 plan all right so um this is an exception to what I mentioned a few minutes ago tax advantages you know varies by state so they do um and for most of us who don't live in tax
15:20 parody States we're governed by whatever the rules are in our state um but for those um for those of you living in these nine states you have again greater flexibility okay moving on so from an estate planning um standpoint what are the benefits then of a 529 plan so first of all it reduces it can reduce the size of your taxable estate okay so once you transfer money
15:56 into a 529 plan plan that removes those funds from your taxable estate okay now for most of us right now we're um you know we're below the um the limit um at which our estate would be taxed which said right now it's between 12 And1 13 million so you have to be um among the basically the 1% um most wealthy people in the country to pay estate taxes however um at the
16:35 end of either this year or next um unless um the federal government takes some steps to extend it that lifetime exemption is going to decrease and I think it's going back down to about four or five million so that's going to subject a lot more people potentially to paying estate taxes that being the case um if you Le let's say you have um again two children and you set up a 529
17:11 plan for each of them and you put let's say $200,000 um in each one of those plans and that's not an unusual amount to pay for college these days at least at a you know private university so the total of 4 $100,000 now will be removed from the amount of your estate so let's say your estate um um I I I think the the limit is going down to about $4 million let's just use that for example so let's say that um your the the value of your
17:47 estate before you contribute money to the 529 plans is $4.5 million that would subject half a million dollars to taxation if you create those two $200,000 529 plans you've removed $400,000 from your taxable estate and now with a $4 million exemption you've only got $100,000 that's taxable so you've significantly reduced the amount that of estate taxes that you're going to pay and in essence
18:23 saved that money to pay for your children's College okay so that's one of the great benefits of setting up a 529 plan um another is uh flexibility so um you can change um the Ben the beneficiaries at to adapt to changes in what your family needs so I talked about that before excuse me it's uh it's cold here um we I talked about this before but so let's say that you
19:00 know um you have you have two children um and um um uh they they go to college and they don't use all the benefits in one of the 529 plans so then you could name one of their children one of your grandchildren as a beneficiary so as things in your family change and the needs change the the the 529 plans are are flexible um and they allow you to to to kind of keep up with whatever your current circumstances are okay and then finally
19:38 um another benefit is you get asset protection so once the funds are in the 529 plan um generally speaking your creditors cannot go after that money to settle any debts that you have okay now uh these kind of things are never absolute okay so um you know and and and they can vary from state to state so and and certainly if if um you know they're done with the intent to defraud a creditor so that can be you know at best
20:16 problematic okay so again I'm not giving you any accounting or legal advice I'm just explaining to you um some of the one of the benefits that may be available to you if you properly set things up um you know for the state in which you live and etc etc okay but these are things to discuss with your advisor to see if these are benefits that you can take advantage of okay now an important note here is non-qualified expenses may be taxable so if you use
20:52 funds from a a 529 plan or if the beneficiary uses funds from an a 529 plan for non-qualified expenses then that whatever that amount is let's say they use $10,000 that might that could be um um sort of captured as as as a a taxable income and and of course that defeats the purpose of the 529 plan so um let me give you an idea of what are called non-qualified
21:27 expenses made a little list here um so um so that I would uh not you know not forget them so um uh first of all General living expenses um things like Transportation which includes gas car payments public transportation travel costs not directly related to education so um that would seem to imply that if if your child has to you know fly from where you live to where their college is at that would be a a qualified expense but if if
22:04 they're going to you know fly from where they're living to go visit relatives in another state and then from there fly on to the uh University now you've got some travel um costs not directly related to education um and that could be problematic again these are these are points to discuss with your accountant okay room and boore so um some room and board plans may not be covered um may not be qualified expenses in a 529 plan so oftentimes
22:42 cost of attendance um that does cover room and board so there are universities out there for example that at least their first year require students to live on campus so then um it may be that those room and board expens expenses are qualified in other cases room and board expenses may not be so this is something to look into before you use money in that 529 plan to pay for it okay um health insurance generally speaking is not considered a qualified expense okay so um you
23:17 know all these rules about um health insurance you know while the 529 plan is is a great plan it you know when it comes to health insurance um you know you you would think well you got to cover your child you know your child needs health insurance even while he or she is in in college okay probably not deductible okay extracurricular activities club fees Sports dues gym memberships entertainment um also are are um um non-qualified expenses okay and then personal expenses like um clothing food
23:54 outside of a meal plan um and and uh entertainment um um unrelated to um the education um these again are non-qualified expenses um now each plan needs to be looked at specifically to see what are considered qualified and non-qualified expenses I'm just giving you some ideas to check out okay now um some K through 12 expenses um some plans allow up to 10 $1,000 a year for K
24:30 through 12 tuition okay but that depends on your plans rules so if if you recall I mentioned at the beginning I called this you know paying for college okay in some cases you may be able to pay for private primary and secondary uh schooling okay but there are limits and they need to be checked out before you make those okay Apprentice apprenticeship program costs so only Reg registered and certified programs qualify and there may be limitations on how much uh of the 529 plans funds can
25:06 be used so something to check into so you recall I mentioned um the uh um becoming a Mercedes-Benz mechanic okay um I I've never checked into this but maybe you could use you know 529 plans uh funds to pay for that I I don't know but it it would at least be worth checking out um depending on you know the state that you're in and etc etc okay now if you do use 529 plan funds for
25:41 non-qualified expenses not only will you have to pay income taxes on the earnings portion that with that's withdrawn but also a 10% penalty okay so um in that respect it's it's also similar to other retirement plans where like if you um withdraw funds early you pay a penalty in addition to whatever taxes are due okay so so those are some ideas about again qualified um me non-qualified expenses so so what's qualified well
26:16 College tuition generally speaking um room and board with with you know the exceptions that I mentioned um there could be some fees related like lab fees those kind of things those may be included um books um may be included all of this needs to be looked at U you need to look at the specific plan and by the way I'm going to put this this link that I I mention this link right here about smart ass I'm goingon to put this link into the show notes so you'll be able to
26:51 access that um that that you know database that I showed you a few minutes ago and you can can look at the plans available in the state in which you live um and and see and then start looking into the specifics okay and that's that's um I wonder why there're oh six of seven yeah okay so um that's what I've got for you uh today here's some places where you can go to get help um and these also will be listed in the show notes if you've got a general question um you know feel free to post it in uh uh
27:28 you know social media because that way others can benefit from the answer if you have a a private question then please don't post it on um social media but uh feel free to send an email to to this right here and I'll be happy to um if I can answer the question or if not refer you to somebody who can okay and then we have the legal stuff which we always do and let's go ahead and close this out okay well so thank you very much for joining me this morning uh I hope you found this um useful again it's a great estate
28:05 planning tool um something that's well worth your time looking into finding somebody in your who can advise you about the specifics of your state I've stayed very general um because um you know I have viewers not only across the country but also outside of the United States so um do you know do look into it um and and see if it's uh you know a tool that will improve the quality of your estate plan so tomorrow at 10: am uh Pacific time is my show uh business
28:43 lessons from the military and we're going to be talking about how to organize your business the the Navy Way um we're talking about what's called opnav and and and end shops and all that kind of stuff I think you will find it um quite useful and then on um uh Wednesday at 10:00 a.m. I'm going to show you how to start an entity for a business we're going to look at three we're going to look at um a sole proprietorship an LLC and a corporation I'm going to go step by step um on the
29:20 things that you need to do in order to set up those three types of entities so please do join me um for the rest of this week and and then of course a week from today we'll be back with the next Edition the next episode of trust and estate weekly I know I have a guest can't remember who it is um but I think you'll enjoy that person as well so wishing you a wonderful rest of the day and thank you again for watching signing off as I always do Marie you're my bell all the best