At the death of the owner, the account will be given to the named "successor owner" which is not necessarily the same person as the beneficiary, though it can be. In the absent of a successor owner the plan rules and state law will govern the transfer of the asset. However, the transfer of the assets to the 529 plan account is considered a completed gift and is, therefore, not includible in the gross federal estate of the contributor or owner. If, however, the donor uses the 5-year rule for a lump sum gift and dies before the end of the 5-year period, part of the gift may be includible in the gross estate of the donor.
The successor owner would then have control over the account including the ability to change the beneficiary. The change of the successor owner itself doesn't trigger a gift. In 529 plans only the change of a beneficiary does triggers a new gift or taxable/reportable transfer.
There is no requirement to distribute the funds from a 529 plan within a certain time period under federal rules (like there are for Coverdell Education Savings Accounts), but changes in beneficiaries must be in the same generation to avoid triggering a new taxable/reportable gift.
It is possible for beneficiary changes to a relative in a younger generation to also trigger the Generation Skipping Transfer Tax. See more about that here: What is the Generation Skipping Transfer Tax?
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