Picture this scenario:

You’ve worked hard, saved and managed to accumulate some wealth.

You’re not wealthy by any means - but your siblings haven’t fared as well and you want to make sure that their children have the benefit of higher education. With no children of your own, it seems the thing to do.  

So, you set up college savings plans for your nieces and nephews, make them the beneficiaries, and mention everything in your will.  

And life goes on…

You don’t give it another thought beyond making regular contributions. You move to another state. You divorce. All the things that happen in the normal course of living.  

You know you need to change the beneficiary of your estate and name another executor (both are still your former spouse) but you never really get around to it.

And then the unthinkable happens: You die unexpectedly, with no time to make the changes you intended to make.
This is where things can fall apart for those nieces and nephews you so wanted to take care of.  

To make sure your wishes are carried out as you intended, take these steps to protect those 529 college savings plans:

1.    Name one or both of the child’s parents as participant or owner.
If you name your niece or nephew as the “beneficiary” of the 529 plan as a gift, you must add one or both of the child’s parents as the participant or owner.
 
2.    Update your will.
I know you’ve heard this at least a thousand times, but I’ll say it again because it is critically important in situations like this.

3.    Don’t leave assets or insurance outright to your nieces or nephews.
If you leave assets or insurance directly to your nieces or nephews and they are minors, their parents will have to go to court to be named as guardians to gain access to these assets. Needless to say, that just adds complexity and expense to the process.

4.    Have your estate planning and financial documents thoroughly reviewed.
When you update your will, make sure that all your estate planning documents are reviewed, cross-referenced and do not contradict one other.    

Darlynn Morgan is an attorney, speaker and an auntie (and a mom!).

Published: September 28, 2010