I think I’d walk away and let him do whatever he wants with the money. You’ve told him you are disappointed in how he is treating your daughter and your mother’s wished, but that’s all you can do. All you can do is say, “Look, Dad, you know what the money was intended for but you do what you want to do.”
Unfortunately, I had a father like this too. I learned a long time ago to stay out of business deals with him. Learned the hard way.
Not a chance I would write a check for money that was supposed to all go to the child’s education. I would say once more to your dad that it wasn’t what your mom intended, that you are disappointed, and then be done.
You are not dishonoring your mom’s wishes. Your father is.
It sounds like your father is dead broke. If he wiped out his retirement savings, how is he going to afford a CPA? I think you need to come to terms with the inevitability that your student will see none of that money for college. Your bigger concerns would be how you can avoid financially supporting him and his wife when that 529 money runs out, and how you can replace that money in terms of helping your child with college expenses. It is a very sad situation.
Thank you all, for giving me “permission” to walk away from the 529 and not feel guilty about my mother’s intentions. I needed that.
We will make do without the grandparent 529. My husband and I have been saving for our children’s education, not counting on $ from the grandparent 529. I knew it existed, but not how much was in it, and I assumed it was a small amount. The total, $18k, is actually more than I expected.
I completely agree that my bigger worry should be the future, and my father using me as an emergency bank. Although is wife H-A-T-E-S me, so I think her pride would prevent them from asking us for money. Thankfully he has a pension that he collects from monthly, so there’s a slow trickle of money coming in regularly.
Again, thanks for the advice.
OP- hugs.
Two thoughts- you can honor your mom and her intentions towards your son by continuing to express your pride in him, and your belief in the value of his education. I feel from your post that her contribution was both practical and symbolic- and the symbolism is by no means negated by the fact that she didn’t live to see the fruits of her labor. I’m sure your kids were her pride and joy…
Second- do you know for a fact that ownership of the 529 passed to your dad when your mom died??? Depending on how the account was set up- your mom could either designate a contingent owner (which logically would be either your dad or you) OR the account would/could revert to the beneficiary, I.e. your kid.
Do not assume. It’s worth checking…it would be in the original paperwork, or a quick call to the financial company where the account is held would likely yield the answer. People don’t always retain the original forms, but the brokerage firm where the account is would have a record of either a contingent owner, or what the particular plan’s rules are for when a 529 account owner passes before the money is used…
Yes, it’s now your father’s money and he can do with it, as he pleases, including taking it all out for himself and spending it on non educational expenses. This is always the danger of having other people hold your money or money designated for your purposes. Not that you had any choice , most likely, in this scenario.
I’ve seen this happen a number of times where folks put away money into a 529–(sometimes that 529 has contributions from many other people as well ) and then decide later , sometimes much later, that they need that money.
The federal tax liability is not likely to be a big deal. Your father will get a 1099Q from the 529 when he cashed it out. It will indicate what part of the distribution is earnings. That is reported on the 1040 when he files his federal tax returns, as additional income along with a 10% penalty on the amount.
Where it can become very Complicated is if the 529 has contributions that got a state deduction or credit. In our case, both of our 529s gave us state tax breaks when we contributed ( one still doesn’t as it allows carry forwards of amounts!). In that situation, those amounts have to be recaptured on the state returns. It’s also an issue if people other than your parents contributed and deducted those contributions from their state taxes. How any give state tracks its 529s , I do not know. But, bottom line, I’d your father was getting tax breaks when your mother was funding that 529c the state is going to want those breaks recaptured. That can be a complicated tax mess.
I would walk away from the mess. Do let your father know that if he cares to use any of that money towards his grandson’s education , he may get a tax break in amounts so expended. Then leave the rest up to him. You might also want to apprise him that there are state recapture rules if that is the case for his 529.
I know it’s disappointing but this happens often in less directed ways. I know many many families where grandpa or Aunt Jane or big brother promises to help out with college, reiterating the promise regularly, right up to the point when payment is needed and then regretfully reneging. One of my son’s very close friends committed to a very expensive school because his grandfather insisted he do so, and promised to pay the tuition. After the first year hit, he said he could not afford to do so any more.
This is true. I couldn’t even remember how my kids accounts were set up so just went and checked. My oldest son’s account goes to my ex husband, but my youngest has no contingent owner and just goes to him.
If mom knew that dad was not good with money, she may have very well made you the contingent owner.
Different plans have different rules- but even if the grandfather inherited everything when his wife passed, it doesn’t mean he automatically inherited the 529…
Just something to check on…
These types of difficult family situations are way too common. We have had a similar thing happen with a Grandparent’s new wife. It is so sad and shocking when it happens to you.
I agree that a look-see on who really inherited the 529 is in order.
It doesn’t take a step grandparent to cause this situation , but a step parent joining a family does shift a lot of the asset inheritance and sharing many times.
For the sake of clarity, I don’t think “revert” is the right word here, because unless the beneficiary was ever the legal owner of the account (and the facts here don’t indicate that), there is no beneficiary ownership status to revert to.
Because of privacy concerns, unless the OP or the beneficiary is designated as the contingent owner, I would be surprised if the account administrator discloses anything.
I don’t believe that you have seen the account documents, and therefore you don’t know that the money is in fact the father’s to do with as he pleases.
When a 529 beneficiary is not the account owner, the money in the account is certainly not the beneficiary’s money being “held” by another person. And in the sense that the money in the 529 account is “designated” for a particular beneficiary’s use, that is only a temporary condition that can be changed in an instant with the stroke of a pen or the click of a mouse.
If the account administrator will not confirm that either the grandchild or one of the parents is the contingent owner, then “asked and answered”.
But I would not assume that grandma never designated a contingent owner- and it would not have been unusual for that person to be the parent even if the rest of the estate went to the surviving spouse.
OK- not revert. But some plans are set up so that if the account owner dies without a designee the account then transfers to the minor child when the child is of age.
Google it. Apparently it comes up all the time.
A substantial number of people set up various accounts (I know my company has this with retirement accounts, it’s an issue with company paid for life insurance) and either don’t do the proper designation, OR forget to change the designation as life’s circumstances change.
Can you imagine the dialogue when spouse #2 discovers that the proceeds of the life insurance policy are going to spouse #1- who has not been on speaking terms with the deceased for 20 years? A good divorce lawyer will remind (and nag) to change the beneficiary on policies which regularly bill and communicate with the policy owner. But who thinks about the company paid for policy, until someone dies and the policy pays out???
Check the paperwork and don’t assume…
I absolutely agree, but OP’s access to the 529 account paperwork may be problematic. And unless OP knows which of the scores of 529 plans is at issue here, determining specific policies regarding a deceased account owner will not be easy.
Something for all to remember about being a beneficiary of a 529. Not much different than money just generally set aside or a verbal promise to pay. As I said earlier, this happens often. That the beneficiary is named, that grandmom intended this money to go for college , makes this more painful, IMO
I would say asked and perhaps partly answered. Refusing to disclose anything to the OP or the presumed beneficiary may only mean that neither is a designated contingent owner, either by original account owner choice or by plan policy. It doesn’t mean that the original owner’s spouse has legally assumed ownership. There’s a chance that the 529 administrator hasn’t even been notified that the original account owner has died.
“Hi Dad, thanks so much for your offer to let us “buy you out” of mom’s 529. I can give you a better answer on the tax consequences and if we’re going to be in a position to do that if you can send me (give me, forward me) a copy of the last statement so I can do my homework”.
Voila- account number, name of the brokerage firm/plan, state that it’s set up in…
Yes, things such as this are much easier when dealing with a cooperative relative. All bets are off when the relative is potentially being influenced by a second wife who H-A-T-E-S you.
Presumably it was the father’s idea to allow the next generation to help him liquidate the account? So even with a wife who dislikes the kids… he hasn’t said “My money, my problem”, right?
Thank you Blossom, I needed that cry! You are absolutely correct, I will honor my mom and her intentions towards her grandchild by continuing to express pride in them, and our belief in the value of their education. I won’t let my father take that away from me.
At everyone’s advice, I emailed my father’s (ex) financial advisor who initiated the 529 plan 18 years ago. She replied with a lovely message, but also said she couldn’t divulge any information about the 529 without my father’s written consent. That answers the question: my father must be the legal the owner. I followed up with an email explaining the situation, just in case his name is not on the account. Incidentally, my father mentioned a few months back that this financial advisor sent him a letter severing their relationship (after he emptied his retirement plan without consulting her first.) She, of course, did not mention that in her response to me.
@cptofthehouse the 529 was from a different state, not the one my father lives in, therefore I’m hopeful he won’t have the complication you mention with state tax breaks. I intend to take your advice and walk away from this mess.
Thanks for your support everyone, and the perspective. I am lucky that this does not make or break my child’s ability to attend the school they worked incredibly hard to get into.