Journal of Financial Planning: January 2026
Anne Rhodes is chief legal officer at wealth.com, the most comprehensive digital estate planning platform.
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In the face of ever-rising costs, college planning has grown from a cash flow management exercise into a complex strategy involving tax planning, multigenerational wealth transfers, and risk mitigation.
There are three common ways in which wealth transfer planning touches on college planning. First, financial planners should speak to clients about tax-advantaged vehicles that are readily accessible to help families save for college. Second, financial planners should be wary of how attaining a college degree is incentivized in their clients’ trusts. And lastly, planners should consider that successful financial planning requires their clients to continue helping their children manage their financial lives when they attain the age of majority and go off to college by setting up their adult children with durable powers of attorney and healthcare directives.
Planners should also be wary that the value of a four-year college degree may be revisited by technological advances. It is crucial for planners to understand what flexibility exists in various college savings vehicles and be willing to challenge their clients’ well-intentioned thinking that requires a beneficiary to achieve a college degree to qualify for an inheritance.
The Power of the 529 Account
Institutions of higher learning continue to shock and awe with their ever-rising cost of attendance, despite mounting questions from industry thought-leaders over the sustainability of these tuition hikes.1 According to the College Board, the numbers now tell a hair-raising story: the average sticker price for a private nonprofit four-year institution now stands at approximately $62,990 annually for the 2024–2025 academic year.2 While it’s true that what families pay after grants and scholarships is closer to $36,150, this sum still represents a substantial strain on most families, especially those with multiple children.
The cornerstone of saving for college is the 529 account. Readers of this column should be familiar with the basics of a 529 account. Your client, as the donor, funds a 529 account for one named beneficiary. The appreciation in the account is tax-free for federal income tax purposes (and some state purposes) if withdrawals are used for qualified education expenses. Non-qualifying withdrawals are subject to a penalty tax.
It pays for your clients to start contributing early and then assess the need for more contributions as the beneficiary approaches college age. These accounts benefit from low investment fees, advantageous income and estate tax attributes, and flexibility to distribute the funds for purposes other than education and to benefit individuals other than the original intended beneficiary.
Funds in 529 accounts are includable in neither the donor’s nor the beneficiary’s taxable estates. These accounts are such powerful and democratic wealth transfer vehicles that even ultra-high-net-worth families concerned about maximizing every dollar of their gift and estate exclusion amounts through enormous dynasty trusts will create 529 accounts.
Establishing a periodic cadence of annual gifts up to the annual exclusion amount ($19,000 per donor per beneficiary in 2026) will quickly yield a significant 529 account. For example, a client contributes $19,000 each year for five years to a 529 account with a flat growth rate of 5 percent. At the end of those five years, the account would hold about $105,000 (or about $10,000 of tax-free growth).
Even better, the 529 account is a rare vehicle through which a donor can gift more than the annual exclusion amount in one tax year; the account can be superfunded. Your client would make an initial seed gift of five years’ worth of the annual gift tax exclusion (i.e., $95,000 in 2026). With the same facts as the previous example, except that the contribution is made as a lump sum in the first of five years, the 529 account would hold about $121,000 (or about $26,000 of tax-free growth).
In fact, when taking into account the fact that a donor can contribute double their own exclusion amount by gift-splitting with their spouse (thus, superfunding a 529 account with $190,000), it is possible to overfund a 529 account.
It is anybody’s guess how much any single beneficiary will end up using of their 529 account, and a financial planner should understand what “escape hatches” exist in the event a 529 account is overfunded. Historically, legislators have liberalized the rules to allow for optionality beyond using a 529 account to pay for college tuition for one named beneficiary. Most recently:
- The law enacted in 2017 that is most commonly known as the Tax Cuts and Jobs Act (TCJA) allowed tax-free withdrawals of up to $10,000 per year for tuition expenses at an elementary or secondary public, private, or religious school and for tax-free rollovers from a 529 account to an ABLE account for the same beneficiary or a member of the beneficiary’s family.
- The SECURE Act of 2019 allowed tax-free withdrawals of up to $10,000 per beneficiary to pay principal and interest on qualified student loans for the beneficiary or their sibling and expanded qualified expenses to address registered apprenticeship programs.
- The SECURE 2.0 Act of 2022 allowed the donor to rollover up to $35,000 from a 529 account into a Roth IRA for that same beneficiary.
- The One Big Beautiful Bill Act of 2025 expanded qualified K–12 expenses beyond tuition to include items like curriculum materials, standardized test fees, and tutoring, and strengthened the TCJA’s changes by doubling annual withdrawals for K–12 expenses to $20,000 and making permanent the rollover to an ABLE account.
529 accounts are darlings of legislators, regardless of who is in Washington.
An Imperfect Alternative: The “Trump Account”
The OBBBA’s creation of the child savings account (the so-called Trump account) has generated a lot of media attention. It features a windfall of $1,000 for the fortune of being born between January 1, 2025, and December 31, 2028. Parents may contribute up to $5,000 annually to an account—and their employers may contribute up to $2,500—until the child turns 18.
For college planning, the 529 account remains king. Child savings accounts cannot be accessed until the child attains age 18. Withdrawals are taxed as ordinary income. Coupled with the fact that the contribution to these accounts count as taxable gifts, the donor would have to decide whether $5,000 of their $19,000 gift should be allocated to a child savings account rather than a 529 account (with its tax-free growth). Most commentators have concluded that child savings accounts should primarily be used to capture the $1,000 windfall and as a complementary savings vehicle to the $35,000 in a Roth IRA (converted from a 529 account) once it becomes apparent that a child prefers to pursue non-traditional education.
College Degrees and Trust Distributions
For high-net-worth families that emphasize education, it can be tempting to incentivize obtaining college degrees through their irrevocable trusts. The two most common ways in which this emphasis on education is reflected are (1) requiring a certain level of educational attainment before a beneficiary may receive distributions, and (2) creating an education trust whose funds can only be used for qualifying educational expenses, as defined in the trust. Financial planners should be wary of both.
The same concerns that lead to the overfunding of a 529 account exist in both instances. It is simply impossible to predict the future, particularly if the irrevocable trust is intended to last beyond the traditional rule against perpetuities—or roughly 100 years. As a planner, push your client’s thinking on these facts:
- College tuition will remain an outsized financial concern for families.
- The American Dream usually includes having a college degree.
- The description in the trust of the programs (e.g., “four-year college or university” or “bachelor’s”) that qualify the beneficiary for a distribution will not change over time.
- Requiring this educational achievement will be an effective incentive for the beneficiary to contribute to society or feel personal fulfillment in the way that the client hopes.
Estate planners are generally wary of too much rigidity in trust distribution rules for good reason. After all, it is often inflexible distribution rules that push families to pay their attorneys five to six figures to appoint trust protectors, decant the trust, or seek a court-blessed modification.
Moreover, the trustee’s general power to distribute in the best interests of the beneficiaries should cover educational expenses. In fact, education is seen as such a basic expense for beneficiaries that even the tax rules label education an “ascertainable standard” that does not cause the trust to be includable in a trustee-beneficiary’s taxable estate.
A more future-proof way to address your client’s wishes would be to write a family mission statement that is not legally binding but will guide the trustee or to offer an alternative condition that the beneficiary can fulfill, such as attaining a certain age. Importantly for long-term education trusts, there should be an escape hatch under which a trust protector or other fiduciary can decide to convert the trust to a new one with more liberal distribution standards—always in the best interest of the beneficiaries.
Lastly, I will write in defense of the traditional rule against perpetuities (RAP), which has fallen quite out of favor in the United States as high-net-worth families and their fiduciaries seek ever-friendlier jurisdictions to perpetuate their wealth through dynasty trusts.
The RAP is a legal backstop to humanity’s desire to control wealth and people beyond their death and humanity’s limited imagination for change. In the case of distribution standards based on educational achievement, the RAP may be an unsung hero, not a villain.
Post-Enrollment Risk Management: Essential Legal Documents
Past the point of college enrollment, your clients may not be aware of a legal gap: their adult, but financially dependent, child does not have estate planning documents. This gap will only become apparent when something has happened to that child and your clients are at their most desperate hour.
It is critical for your clients to have the legal right to step into their adult child’s shoes if anything were to happen to that child.
As soon as the child attains the age of majority, the parent is automatically stripped of rights to access the child’s financial, medical, and academic information. For example, the Health Insurance Portability and Accountability Act (HIPAA) and the Family Educational Rights and Privacy Act (FERPA) are just two federal laws among many that are hurdles when parents need information on their child, and the child’s powers of attorney should address these laws.
Having the child name their agents is especially important in the case of divorce or when the parents are expected to disagree on who should act and what decisions will be made. With a power of attorney over the child, the parents will have to seek a conservatorship, involving a judge, which will become an onerous proceeding if the parents cannot agree.
To broach this touchy subject with your clients, preface the discussion by reminding them that this is just another way in which you show that you care for their peace of mind.
Conclusion: Elevating College Planning from Saving to Strategy
Modern-day college planning has grown far beyond simple saving and budgeting into a sophisticated strategy. It is a great opportunity to discuss liquidity and investment timelines, gift tax optimization, and estate planning across generations. In order to position themselves as indispensable architects of multigenerational wealth and family security, advisers should familiarize themselves with 529 accounts, understand and challenge their clients’ views on higher education, and help their clients think about estate planning as a multigenerational expectation.
Endnotes
- Read more in “AI Could Help Bring Down the Cost of College” by Kartik Hosanagar in the Wall Street Journal, November 19, 2024, www.wsj.com/tech/ai/ai-college-costs-higher-education-9a8f875d?gaa_at=eafs&gaa_n=AWEtsqdjnDcwMbFn0Wal65RcR20hmvljK8KmcoG_Irvk0FNKPyandlAA35p23xta7ak%3D&gaa_ts=69099138&gaa_sig=FtYTyPwgc95tDFu8fsSTtlLl85SZ5BqD-VAWvPA3IgKLvAvCHc8PPJkwifDyNq91keCBXtdb184tX6kF1WoVAw%3D%3D.
- See https://research.collegeboard.org/media/pdf/Trends-in-College-Pricing-and-Student-Aid-2024-ADA.pdf.