A 529 education savings plan is a plan where you select the recipient ("beneficiary") and make contributions for that person's post-high school education. The beneficiary can be a child, grandchild, nephew, niece or just the neighbor's kid. You make the contributions in any amount you want. You can change the investment strategy or even the beneficiary. And those contributions can be used to reduce your overall estate for estate tax purposes.
The law currently allows a lump sum contribution of $65,000 per beneficiary, with an unlimited number of beneficiaries. That is money that won't be in your estate at the time of death, and therefore not subject to the estate tax. Remember that the current limit for estate tax is $3.5 million, but a lot of people expect the Obama Administration to push for a reduction back to the $1 million limit that existed nearly 20 years ago when Clinton was president.
There are some quirks about 529 contributions. For example, you cannot make other reportable gifts to the recipient during the five-year period after the gift, and, if you die during that five year period, a pro-rata share may come back to your estate. But it's a good way to reduce your estate.
If you're a grandparent and own the account (it is possible to set up the account in the beneficiary's name), the amount in the account is not counted when it comes to determining whether the recipient is eligible for student aid, such as grants and loans.
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