Are those 529 college savings plans still a good idea?
Dear Liz: Last week we had an infant come into this world, and we’re already thinking about college. I know you’ve addressed this before, but things change and I was wondering if the 529 plan is still the way to go. If our son decides not to go to college, what are the tax consequences?
Answer: Congratulations! Yes, state-sponsored 529 college savings plans are still a great way for many families to save for future college costs. The money grows tax deferred, and withdrawals are tax free when used for qualified education expenses.
Even if your son opts not to go to a four-year college, he will probably need some kind of postsecondary education. Withdrawals from 529 plans can be used to pay for any accredited school in any state, including community college and trade schools.
On the off chance that he doesn’t get any kind of schooling, or gets a full ride, you can change the beneficiary to a sibling or other close relative, including yourself. And if nobody wants to use the money for schooling, you can simply withdraw it. The earnings will be taxed and subject to a 10% penalty.
Selling collections? Here’s some advice
Dear Liz: I concur with your advice regarding selling collections. I am a retired licensed marriage and family therapist. I’ve witnessed clients struggle with caring for a loved one and their things.
One family started taking photos of their loved one with much-treasured collectible objects, and recording the stories told about them. This offered increased connection and understanding across the generations.
With this recorded story, it was easier to release and sell the things. And there were a few treasures that family members asked to keep, pleasing their elders immensely!
Answer: What a lovely idea! As collectors know, it’s all about the story, and many would embrace the chance to share theirs.
Dear Liz: A friend collected and has some wonderful pieces of Japanese items, some of which are quite valuable. When she was updating her estate plan, her attorney suggested she ask me, as a friend and fellow collector, to be an advisor to her family about disposing of these items after her death. My contact info was then shared with her loved ones.
Another trick I have seen is to have copies made of receipts with identifying information and prices paid placed inside drawers of valuable furniture. Whether these items are sold at auction, estate sale or upscale consignment, the information is extremely valuable in helping to determine authenticity. This information should also be stored with legal documents.
Prior to a recent surgery I shared my information with my sister and went over the location for all pertinent information. It can be difficult for heirs to differentiate Baccarat crystal, vintage Wedgwood china and topquality French copper from goods sold in discount chains.
Once they know what the items are, the internet and EBay make it easy to get a sense of the value of items for sale. Hope you find this helpful.
Answer: Very much so, and I’m sure readers will as well. Thanks for the tips!
Dear Liz: Regarding your advice to the collectors and the impact on the executors, there can be another wrinkle: disagreements on valuations among heirs.
I’m the executor for my parents’ estate. My mother spent a considerable amount of resources collecting art. Unfortunately there is little documentation on the art, and it is in a niche market where it will be hard to get accurate values.
I’ve decided that when the time comes, I will use what little documentation my mother had to establish values and divide the art collection among the heirs. If the heirs want to liquidate the art, that is their choice.
It takes me out of the squabbles over whether I got a “good” price for something. And it gives me time to decide what pieces I want to keep and what I want to sell. This obviously only works when the heirs are people and not organizations and they have the ability to take the collection rather than a check.
Answer: Oh, boy. If you are the executor, you will have a fiduciary duty to the estate. What that means is that you will be legally required to act in the estate’s best interests, rather than in your own.
Cherry-picking a collection can violate that duty and potentially get you sued. Another way to invite lawsuits is to rely on scanty, out-of-date documentation to establish values without attempting to get current appraisals.
If you really don’t want the hassle, ask your mother to designate, in writing, who gets what. She should discuss this with an estate planning attorney to see if her estate documents need updating or if she can include a letter detailing her bequests.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.