On Oct 26, 3:40 pm, "Elle" <honda.lion...[at]nospam.earthlink.net> wrote:
- quote -


I apologize for changing the subject a bit. How is that insane when
thousands of students continue to apply to limited number of seats
available in the best universities? Tuition at public universities
does not cover, by a long shot, the true cost of attendance. A
significant portion of that is covered by taxes. And in the instance
of private universities, covered by endowment.


======================================= MODERATOR'S COMMENT:
Posters to this thread should relate comments to general financial planning.

Rich Carreiro wrote:

[...]
- quote -

People may make gifts to minors simply to stay within gift tax exclusion
limits. For example, suppose Grandpa (single) wants to give $50,000 to
his daughter and son-in-law, but he actually gives $12,000 to each of
them, and $10,000 to each of their two twin sons and $6,000 to their
daughter (youngest of the three), all minor children (his
grandchildren). He did this because he read something on this newsgroup
that seemed to indicate it was a good idea. (Of course, unless his
estate was especially large, simply filing a IRS Form 709 for the year
of the gift would avoid problems).

Would the ethics issue still come into play?

The real "news" item that I take out of all of this, is that while UTMA
college funds were once an OK strategy, they have been all but obsoleted
by two things: QTP (qualified tuition plans) or other tax-advantaged
education savings accounts, and the recent raising of "kiddie tax" age
limits.

The folks caught in the middle of this change are going to look for
creative solutions, no doubt.

-Mark Bole

<scott.d.brenner[at]gmail.com> wrote
- quote -


- quote -


Indeed. Say $160k at a private college for four years is one
huge chunk of dough over four years for by far most of
America.

- quote -

You are not insane; the increases in tuition are. The latest
leger-de-main (sp.) by college administrators is to tack on
all sort of fees. A Sept. 4 NY Times article reports, for
example, that the U. of Oregon tacks on fees that add an
additional 40% to the cost of tuition. Also, student health
care offered is nothing like that of, say, twenty year ago.
The kids (or the kids' parents) are paying significantly
more.

The approach you propose is treated well at the Fairmark
site http://www.fairmark.com/custacct/, with detailed
answers to your questions. Overall, Fairmark indicates it's
situation specific. One caveat is that, while FAFSA will
omit a 529 plan owned by a grandparent, the CSS will not.
See http://www.finaid.org/savings/529plans.phtml

By considering the pros and cons of cashing in the UGMA and
transferring it to a 529, you are promoting your child going
to college such that she or you face as little debt as
possible. You are acting in her best interests.

Given what you say, it seems to me what the right thing to
do here is for no one to judge, barring those who foolishly
want to try to split hairs and are perhaps clueless about
the cost of a bachelors' these days.

Beliavsky <beliavsky[at]aol.com> writes:

- quote -

It's a little fuzzy, but apparently, you're right.
It seems that it's not "you cannot use the money" but,
rather, "you cannot use the money for those things
without potential tax consequences". The bottom
line is that it's pretty messy if you try to follow it to
the letter.

Were I the original poster, and assuming he doesn't have huge
cap-gains embedded in the UTMA account, I'd put the UTMA into
a UTMA-529 and be done.

Yech to the entirety of UTMA/UGMAs and their lack of clarity!

Thanks for picking up my error.

In the second of Fairmark's three-part "UTMA Regret" series,
they do suggest the "kid gives a gift back to parent" strategy
and they give it a resounding "it depends". Interesting
reading, to say the least. (just before the "Return Gift"
strategy, they suggest, daringly, the "just take it"
strategy... Interesting.)



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On Oct 26, 2:31 pm, BreadWithS...[at]fractious.net wrote:

- quote -

If the information at http://www.fairmark.com/custacct/support.htm is
correct, you are incorrect.

"A custodial account under the Uniform Transfers to Minors Act can be
used to pay expenditures for the benefit of the child. It's frequently
said, incorrectly, that the expenditures cannot be for something that
is included in a parent's support obligation. The Uniform Act plainly
says exactly the opposite:

A custodian may deliver or pay to the minor or expend for the minor's
benefit so much of the custodial property as the custodian considers
advisable for the use and benefit of the minor, without court order
and without regard to (i) the duty or ability of the custodian
personally or of any other person to support the minor, or (ii) any
other income or property of the minor which may be applicable or
available for that purpose.

It says the expenditure is proper without regard to a duty to support
the minor. In other words, even if someone (including the custodian)
has a duty to support the minor, the custodian can go ahead an make
the expenditure, provided that it's for the benefit of the child. You
can read in many places on the Internet and elsewhere that a custodial
account cannot be used to pay for items that are within the parent's
support obligation, but the language quoted above from the Uniform Act
makes it clear that those statements are not literally correct."

Pages 5-8 of the fairmark link privded above go on to explain ways of
dealing with "UTMA regret" as he calls it.

As Beliavsky correctly indicated, you can always withdraw the UTMA
money to spend on "support of the child" (therefore it benefits the
child) and put the money you would have spent out of pocket in a 529
instead.

Legally, you are probably okay to do so (I am not a lawyer), but there
are numerous ethical arguments against this tactic. Some argue that a
UTMA is non-specific, while a 529 is education specific. If the child
doesn't go to college, withdrawing the funds would result in a penalty
that wouldn't have occurred with a UTMA. This is decidely not in the
"best interest" of the child, even though alot of parents like that
idea. IOW, the beneficiary of a UTMA decides the fate of the account,
the beneficiary of a 529 plan has his fate decided for him (barring
taxation and penalties).

I'm personally on the fence about this one. From a ethical (poor
diction?) standpoint, your original intentions for the funds became
irrelevant the moment you gifted the money. Therefore, a transfer to a
529 reduces the childs options and is, therefore, bad. On the other
hand, from both a legal and practical standpoint, you're still
benefiting the child with a 529 so the transfer is legit.

scott.d.brenner[at]gmail.com writes:

- quote -

Precisely. Once the kid is no longer a minor he or she could
give things away. As the custodian, you cannot justify "giving
away assets" as in the interest or for the benefit of the
minor. Just saying "it's in her best interest" doesn't legally
make it so. Similarly, you cannot, say, buy a bigger house and
then pay part of that mortgage out of the UTMA account, even
though the kid benefits from you having a bigger house.

The standard example, though, of getting money out of a UTMA
which might otherwise have been money spent by the parent
(therefore, effectively, a UTMA-> parent transfer) is paying
for summer camp for the kid. You cannot use UTMA money to
pay for food, clothing, medical care or shelter. You can use
UTMA money to pay for college, to pay for the kid (not the
family!) to take a trip to Europe, for after-school classes
(music, whatever) - even, potentially, a car.

See, for example,
http://www.fairmark.com/custacct/spend.htm

- quote -

See the link above for some more explanation. If you are
about to spend some UTMA money and aren't *sure* it's okay,
check with someone familiar with your particular State's laws.


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scott.d.brenner[at]gmail.com writes:

- quote -

Because the kid is a minor.

- quote -

Well, legal and ethical aren't the same thing. While it may be legal,
I personally would consider it improper (but that's just me)
*especially* to the extent that money in the UTMA is attributable to
gifts to the child from people other than the parents.

--
Rich Carreiro rlc-news[at]rlcarr.com

Thanks to everyone who responded to my questions!


In response to my question about transferring the assets of the UGMA
to the kid's grandparents, Rich Carreiro said...

"UGMA/UTMA assets are a completed gift and belong IRREVOCABLY to
the minor."

OK, but I have assets that belong to *me* yet I'm allowed to gift part
of them to someone else. So why can't the kid likewise gift some of
her assets? Or is the situatino different because she's a minor? If
that's the case, and hence the reason for a custodian (me), then I
should still be able to do the transfer if it's in her best interest,
no?


BreadWithS...[at]fractious.net gave me some info I'm happy with:

"Due to a (recent) change in law, UTMA assets held in a 529 are
not considered "student-owned assets" in the FAFSA calculations.
Financial-aid wise, there's not much difference now between UTMA-529
money and parent-owned 529 money."

This solves the problem of reducing my kid's assets to make her more
eligible for financial aid. Of course, as Tad pointed out, I have to
first liquidate the UGMA/UTMA assets so I can fund the 529 with cash,
as required. And I do understand that means realizing capital gains.
But I recall that the maximum cap gains tax rate for kids 14 and under
goes UP starting with tax year 2008 (can anyone confirm?), so even
though I'll take a hit, I'd rather do it in 2007 than in 2008.


Beliavsky provided a strategy that sounds good, if I can confirm that
it's legal:

"I think the custodian can sell the assets and spend them on the
normal expenses of raising a child, keeping proper records. If that
money replaced what the parent would ordinarily spend on the child
from other sources, that is economically equivalent to what the OP is
trying to do."


Thanks again for everyone's insight!

Scott
scott.d.brenner[at]gmail.com

On Oct 25, 2:19 pm, Rich Carreiro <rlc-n...[at]rlcarr.com> wrote:
- quote -

According to Fairmark
http://www.fairmark.com/custacct/spend.htm ,

"A custodian may deliver or pay to the minor or expend for the minor's
benefit so much of the custodial property as the custodian considers
advisable for the use and benefit of the minor, without court order
and without regard to (i) the duty or ability of the custodian
personally or of any other person to support the minor, or (ii) any
other income or property of the minor which may be applicable or
available for that purpose."

I think the custodian can sell the assets and spend them on the normal
expenses of raising a child, keeping proper records. If that money
replaced what the parent would ordinarily spend on the child from
other sources, that is economically equivalent to what the OP is
trying to do.

scott.d.brenner[at]gmail.com wrote:
- quote -

Scott,
As others have posted, the funding of an UGMA/UTMA account is a
completed gift so those are your kid's assets, and can be used only for
the child's benefit (how that's defined is a question of state law,
where you live, but making a gift to a grandparent is well out of that
mandate in every state so just put that idea aside).

At this point you have a tax-triage kind of question. You're correct
that some new tax rules are kicking in for UGMA/UTMA accounts, so before
even going into alternatives...what are the unrealized capital gains, as
of today? Something to keep in mind is that 529 plans accept CASH so
you'll need to liquidate the current investments and fund an UGMA/UTMA
529, if you use a 529. That may limit your options.

So - what is the cost basis of your kid's investments, and current value
-- i.e. what are the unrealized gains, as of today?

-Tad

Rich Carreiro <rlc-news[at]rlcarr.com> writes:

- quote -

not really "like a UTMA" - but *still* a UTMA. The owner of he
529 plan account is the UTMA. The beneficiary is still the child.

Due to a (recent) change in law, UTMA assets held in a 529 are
not considered "student-owned assets" in the FAFSA calculations.
Financial-aid wise, there's not much difference now between
UTMA-529 money and parent-owned 529 money. Before that change
in law, the UTMA assets were considered student owned assets and
a much much larger proportion of them was assumed to be available
to pay for college (resulting in less aid).

This seems to be a nice summary of the situation:

http://www.savingforcollege.com/top-...p?top_tip_id=4

Before that change there was still an advantage to moving UTMA
assets into a 529 - fully tax-deferred and/or tax-free growth -
and those benefits might still make it worthwhile even for
folks who don't expect any financial aid at all.

- quote -

But it's up to that now-adult child - like other UTMA assets, the
parent who put the money in there has no more legal say. It is
now fully property of the former child.




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No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
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scott.d.brenner[at]gmail.com writes:

- quote -

No, it's not true. UGMA/UTMA assets are a completed gift and
belong IRREVOCABLY to the minor.

- quote -

Irrelevant, since the transaction is not legal.

- quote -

Ditto.

- quote -

Yes, you are and yes, it is.

However, what you can do is open a UTMA-ized 529 plan -- i.e. a 529
which is under an UTMA umbrella, then transfer the UTMA assets to the
UTMA-529. Like an UTMA, the assets belong solely and irrevocably to
the child -- the beneficiary of the UTMA-529 is the child and cannot
be changed to anyone else (until the child reaches the age of majority
and can personally take control of the UTMA-529, at which point it
turns into a normal 529 and the now-adult child can change
beneficiaries if he so chooses). Like a 529, it gets the usual 529
tax breaks.

--
Rich Carreiro rlc-news[at]rlcarr.com

I've got a nice chunk of change invested in UGMA / UTMA accounts for
my kid's college (4 years away). I am the custodian and I understand
that the assets technically and legally belong to her. But there are
two reasons why I'm looking into selling the assets and re-investing
them in a 529 plan.

First, in 2008 the kiddie tax age rises from 14 to 18 (or 24 if still
a student). Second, financial aid eligibility takes into
consideration a significant percentage of the student's assets but a
much smaller percentage of the parents' assets.

Because of the kiddie tax change, there's no longer a tax advantage in
keeping stuff in the kid's name (other than the initial $1,700
exemption). And because college costs are rising at about twice the
inflation rate (but my salary, unfortunately, is not!), I need to get
the kid "as eligible as possible" for financial aid.

A 529 plan seems to be a good way to go. As I understand them,
earnings on the assets are tax-deferred and withdrawals are tax-free
if used for secondary education purposes. In addition, it seems that
a grandparent can open a 529 account with the grandchild as
beneficiary. Getting the assets into the grandparents' name removes
them from financial aid calculations, which only look at the student's
and parents' assets and income.

So, a few questions, with the premise that I'm only going to do
something if it's 100% legal, since I'd prefer to worry about other
things besides the IRS coming after me...

1) Is it true that, as UGMA / UTMA custodian, I am allowed to sell
those assets and reinvest them elsewhere, transferring ownership to
myself or the grandparents, as long as it's in the best interest of
the child?

2) Would such a transfer be considered a "gift", subject to gift tax
rules?

3) If so, how do the gift tax rules work? What are the limits?
What's the best (and legal!) way to get money from one person to
another?

4) What part of any initial transfers and/or ultimate 529 plan
withdrawals are IRS reportable?

5) Am I completely insane for thinking I can simply move all the kid's
assets to the grandparents? Is this one of those "seems so obvious
that it can't be legal" things?

Thanks in advance for any advice!