1.       Spouse

2.        Child or a descendant of a child

3.        Brother, sister, stepbrother, or stepsister

4.        Father or mother, or an ancestor of either

5.        Stepfather or stepmother

6.        Son or daughter of a brother or sister

7.        Brother or sister of the father or mother

8.        Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law

9.        Spouse of any family member described in categories 2 - 8 above

10.      First Cousins

The category of "first cousins" will allow a grandparent to change the beneficiary from one grandchild to the other without adverse tax consequences, when the grandchildren are not born of the same child of the grandparent.

Relatives Not Included

"Member of the family" does not include a beneficiary’s grandniece or grandnephew, the descendant of a stepchild, or a spouse's niece or nephew.

Gift Tax EffectS of Change of Designated Beneficiary or Rollover.

    A transfer that occurs by reason of a change in the designated beneficiary, or a rollover of credits or account balances from one beneficiary’s account to another’s, will not be treated as a taxable gift if the new beneficiary is a member of the family of the old beneficiary, and is assigned to the same generation as the old beneficiary, as defined under federal law.

    However, if the new beneficiary is assigned to a generation lower than that of the old beneficiary, regardless of whether the new beneficiary is a member of the family of the old beneficiary, a taxable gift will be deemed to be made from the old beneficiary to the new beneficiary.

GST Tax Effects of Change of Designated Beneficiary or Rollover.

    The Section 72 annuity rules will not apply to that portion of any distribution which, within 60 days of such distribution, is transferred to the credit of another designated beneficiary under a Section 529 Plan who is a member of the family of the designated beneficiary with respect to which the distribution was made.

    As described above in connection with the federal gift tax, under federal law a transfer that occurs by reason of a change in the designated beneficiary will be subject to generation-skipping transfer tax if the new beneficiary is assigned to a generation that is two or more levels lower than the generation assignment of the old beneficiary. In such event, the five year averaging rule may be applied to the transfer.

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