Hello –

Have a client who is an attorney and the Trustee of 2 Trusts. We manage the 2 Trusts – they were set up by a grandmother who passed away for her grandchildren to be used for college planning.

Since they are non-grantor trusts, they are taxed at the compressed Trust income and tax rates. Both Trusts have around $102k invested in them.

Additionally, there are fees for the Accountant to prepare 1041s, potential Trust income tax (there was none in 2018 but some in 2017) as well as our advisory management fee.

I wanted to inquire if:

1. Each non-grantor trust could instead invest in a 529 Savings Plan; specifically, NY’s direct plan (note both Trusts are NJ based – so no tax deduction on contributions)?

2. If so, can the Trustee (a) move over $75,000 (front-loading $15,000/year gift-tax free x 5 years) into NY’s 529 Plan now, and then either (b) move the balance ($27,000+) over this year OR (c) another $15,000/Trust next year, etc. until all the funds are in the 529 Plan?

Whose exemption would get used if the full amount got transferred in 2019 (since the owner is a Trust – does it have, for example, an $11.4 million gift tax exemption this year)?

3. The funds are earmarked for college – so they are not losing any flexibility by contributing to a 529 Plan. The beneficiary is 10 1/2 years old – so the funds are projected to be needed in around 7 -12/years. Accordingly, I’m trying to think of a way to eliminate all potential taxes yearly while retaining the benefits offered of a 529 Plan.

4. Since the Trustee is an independent trustee (an attorney), as 529 Plan assets remain with the owner, presumably one of the parents should be named a successor owner/custodian in the event something were to happen to the Trustee. Is this correct?

Any feedback regarding the above would be greatly appreciated. Thank you!

Jason