Gift tax on contribution to 529 college plan

What is the name of your state? Michigan

I want to contibute $12,000 to my 16 year old grandsons 529 Michigan Education Savings Program. The account is in my sons name with my grandson listed as the benificiary. I am also gifting my son $12,000. If I send the gift (contribution) directly to the savings plan for deposit in the account will it be viewed by as a tax free gift to my grandson or will it be viewed as as second $12,000 (taxable) gift to my son? I want to avoid any gift tax. Thank you.

mfhlmr0 said:

What is the name of your state? Michigan

I want to contibute $12,000 to my 16 year old grandsons 529 Michigan Education Savings Program. The account is in my sons name with my grandson listed as the benificiary. I am also gifting my son $12,000. If I send the gift (contribution) directly to the savings plan for deposit in the account will it be viewed by as a tax free gift to my grandson or will it be viewed as as second $12,000 (taxable) gift to my son? I want to avoid any gift tax. Thank you.

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What did the administrators of the plan in your state say when you asked your questions?

mfhlmr0 said:

What is the name of your state? Michigan

I want to contibute $12,000 to my 16 year old grandsons 529 Michigan Education Savings Program. The account is in my sons name with my grandson listed as the benificiary. I am also gifting my son $12,000. If I send the gift (contribution) directly to the savings plan for deposit in the account will it be viewed by as a tax free gift to my grandson or will it be viewed as as second $12,000 (taxable) gift to my son? I want to avoid any gift tax. Thank you.

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Any gift under the allowable limit (which I believe is 12,000) this year, does not trigger a need to file a gift tax return. You would be gifting your grandson rather than your son, as the money is to his benefit.

Even if a gift tax return needs to be filed, that does not mean that gift tax is due. You are allowed to gift up to 1.5 million in your lifetime (including your estate) before gift taxes kick in.

If tax were due, it wouldn't be your son or grandson who would be required to pay the taxes. It would be you.

You would be gifting your grandson rather than your son, as the money is to his benefit.

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Correct.
(see http://www.financial-planning.com/pubs/college_adviser/20040527102.html)

529 Plans are assets of the plan owner, not the beneficiary, but the gift tax rules specifically disregard this and treat it as a gift to the beneficiary. This is despite the fact that the beneficiary can be changed at any time, or the plan owner can withdraw the money themselves (with substantial penalties).

Note that the Applicable Exclusion Amount is only $1 Million not $1.5 Million for gift tax purposes.

For more details see the folowing link.

http://www.irs.gov/publications/p950/ar02.html#d0e260

Sec 529 allows you to gift 5 years' worth of gifts at once (& then none for 5 years). The plan is in your name with grandson listed as beneficiary. That way he can't access the money for a new car, & it doesn't count as an asset when he's applying for financial aid. You can also transfer any unused balance to another grandchild or descendent.