PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 811 (i) Paragraph (2) of section 529(c) is amended to read as follows: "(2) GIFT TAX TREATMENT OF CONTRIBUTIONS.—For purposes of chapters 12 and 13— "(A) IN GENERAL.— Any contribution to a qualified tuition program on behalf of any designated beneficiary— "(i) shall be treated as a completed gift to such beneficiary which is not a future interest in property, and "(ii) shall not be treated as a qualified transfer under section 2503(e). " (B) TREATMENT OF EXCESS CONTRIBUTIONS. — If the aggregate amount of contributions described in subparagraph (A) during the calendar year by a donor exceeds the limitation for such year under section 2503(b), such aggregate amount shall, at the election of the donor, be t5cen into account for purposes of such section ratably over the 5-year period beginning with such calendar year.", (ii) Paragraph (5) of section 529(c) is amended to read as follows: "(5) OTHER GIFT TAX RULES.— For purposes of chapters 12 and 13— "(A) TREATMENT OF DISTRIBUTIONS.— Except as provided in subparagraph (B), in no event shall a distribution from a qualified tuition program be treated as a taxable gift. " (B) TREATMENT OF DESIGNATION OF NEW BENE- FICIARY.— The taxes imposed by chapters 12 and 13 shall apply to a transfer by reason of a change in the designated beneficiary under the program (or a rollover to the account of a new beneficiary) only if the new beneficiary is a generation below the generation of the old beneficiary (determined in accordance with section 2651).". (B) ESTATE TAX TREATMENT. —Paragraph (4) of section 529(c) is amended to read as follows: " (4) ESTATE TAX TREATMENT. — "(A) IN GENERAL.—No amount shall be includible in the gross estate of any individual for purposes of chapter 11 by reason of an interest in a qualified tuition program. " (B) AMOUNTS INCLUDIBLE IN ESTATE OF DESIGNATED BENEFICIARY IN CERTAIN CASES. —Subparagraph (A) shall not apply to amounts distributed on account of the death of a beneficiary. " (C) AMOUNTS INCLUDIBLE IN ESTATE OF DONOR MAKING EXCESS CONTRIBUTIONS.— In the case of a donor who makes the election described in paragraph (2)(B) and who dies before the close of the 5-year period referred to in such paragraph, notwithstanding subparagraph (A), the gross estate of the donor shall include the portion of such contributions properly allocable to periods after the date of death of the donor.". (4) PROHIBITION AGAINST INVESTMENT DIRECTION.— Section 529(b)(5) is amended by inserting "directly or indirectly" after "may not". (c) COORDINATION WITH EDUCATION SAVINGS BOND.— Section 135(c)(2) (defining qualified higher education expenses) is amended by adding at the end the following:
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