Probably not. The wealthier you are, the less sense they make.

These accounts do offer some income tax benefits. Appreciation is tax free and withdrawals are not taxed as long as they are used for qualified expenses, which are broadly defined and include tuition, room and board, books and computers.

Most wealthy investors open accounts when beneficiaries are quite young, aiming for growth by selecting investments heavily weighted to stocks. Thus, the majority of tax avoided using 529 accounts is on long-term capital gains. That rate, even when set to rise next year, is still far less than the tax on ordinary income. And if markets fall, losses inside plan accounts have no tax benefit.

From an estate tax perspective, these plans have some special characteristics. 529 plans allow you to make five years of annual exclusion gifts all at once. Funds contributed are outside your estate, yet you retain investment authority as well as control over how and when distributions are made. You may also change the beneficiary without gift tax implications if the new beneficiary is a member of the original beneficiary’s family. Lastly, there are no generation skipping tax consequences as long as the new beneficiary is the same generation or above that of the original beneficiary. However, if funds are unused there can be unintended gift tax and GST issues.

If you are able to pay for tuition as it comes due, instead of a 529 plan, you should fund a trust. You will transfer assets out of your estate now without the restriction that they be used for expenses related to postsecondary education. Direct tuition payments do not count toward annual exclusion amounts, so you can fund a trust now and later; in the years when you are paying tuition directly, you can continue your annual exclusion gifts to the trust, significantly increasing the wealth transfer. Note that appreciation inside the trust does not occur tax free; however, as previously stated, if invested in equities, most of it will likely be at the lower long-term capital gains rates.

From our perspective, investment control is paramount. In a trust, you will have complete control over your investments instead of being limited to the predetermined investment options of a 529. With the 529 plans, it can be difficult to ascertain the actual investments. For example, in Illinois, a fund labeled “Core Plus Fixed Income” and characterized as a conservative investment ended up being leveraged and full of mortgage securities. It lost 38 percent in 2008 (stocks fell 37 percent).

Bottom line, if you are sure you can pay the tuition bill, use annual exclusions to fund a trust, and retain control over your investments.