Child Gift/Investment question

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Child Gift/Investment question

Post by lernd » Sun Jun 18, 2017 12:59 pm

My uncle (who has no children), recently gave money to each of my small children to be used for their future educations. It is a generous gift based on his fixed income (I have little knowledge of his finances), though a small amount (currently about 5%) relative to my childrens' current 529 balances, ages 2 and 4 (invested in broad based index funds). He set up a custodial account to have the gifts invested in a single mid-cap value stock (from what I've learned about it on Morningstar) with automatically reinvested dividends which currently pay in the 2-3% range. I do not believe it was set up as a UTMA but I am the designated custodian of each account.

While I think we are fortunate enough that his gifts will not make-or-break my children's education going forward, and I am grateful as much for the symbolic measure (generational gifting to help the only members of his family of the new generation) as anything else, I can't help but approach it as a Boglehead who would never invest any meaningful money into a single stock (I do, in a taxable account have ~1% of my total assets invested in single stocks, so maybe I just don't like the idea of this stock). In delving further (and testing the waters), I discussed the gift with my father (uncle's brother), who, when I mentioned the individual stock, said, "Yes, that's a great investment. We have money in that stock as well" Apparently, it is a family assumption that this stock is "good" and the last two generations of my family have invested faithfully in it as their father (my grandfather) had a portion of his retirement invested in it. It leads me to wonder whether there is some family "emotional" attachment to the stock, and therefore the gift of the stock.

I mention this because I'm wondering if I should close the account, take the proceeds and apply them to the 529s. I do not want to upset my uncle, nor seem like we are not grateful for the gift. It may be a better tax move (as well as better diversification) since annual gains are not taxable within a 529 but may be with this custodial account (?). Or, as a better question, if I did do move the money, how I would address any future comments/discussion in the family regarding the stock (should I tell him what I'm doing or only mention it if it comes up in conversation)?

Thanks for the collective insight!

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Re: Child Gift/Investment question

Post by livesoft » Sun Jun 18, 2017 1:11 pm

How is this not a UTMA account with you as custodian? I'm curious.

I would not make any change, but would have a frank discussion with your uncle. Have you sent Thank you notes already? If not, why not? :)

As for taxes, it reads like the amounts are so small that there would not be any taxes owed, although you may have to file tax returns eventually for the children to show that -- especially if they get other accounts and assets as they grow. You can bring that up in your discussion.

One more thing, this is the children's money, so you cannot move the money into a 529 plan owned by you or anyone else except the child. That would mean opening new 529 plans. It is possible that your uncle does not know about 529 plans and what a great deal they can be.
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Re: Child Gift/Investment question

Post by 2m2037 » Sun Jun 18, 2017 2:37 pm

Since it was a gift, I don't think you should do anything to it. What if the gift had been say, $30,000 per child to buy them a car upon graduation and he wanted it put in a savings account till they graduated? Or if it had been a Rolex watch to gift upon graduation. Would you sell it and invest the cash you got from the watch, since you didn't think it was the best use of money...? You mentioned that he might get upset, so if that is even a consideration I wouldn't make any changes to the form of the gift. :happy

Who knows, it might turn out to be a windfall :D

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