What to do with money from grandparents for kids?

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objectivefunction
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What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 3:41 pm

I have received $1,000/kid as a gift from grandparents (oldest is 11; youngest 6 months). I have established 529 accounts for each of my children, and they each have varying amounts of money in them. (I'm trying to be equitable given the fact that a $1,000 gift for the 6 month old has a lot longer to compound than for the 11yo.)

For this particular gift, I'd prefer not to put it into the 529 accounts (and I've discussed this with grandpa). I'd like to have the option to fund a gap year and some world travel for my kids, or just give them the money to start a business, or as a wedding gift, etc. To be clear I'm not giving up on saving for college, just wanting have more options.

I'd prefer to keep it simple, but based on my reading, custodial accounts have some drawbacks. I don't want to do anything that would adversely affect financial aid or scholarships. I think that $5,000 is probably not enough to worry about setting up a trust. I could just open a taxable account and invest it, but I'd prefer it to be earmarked and protected for my kids (not that I intend on going bankrupt or raiding their money).

Is the taxable account my best option?

NotWhoYouThink
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Re: What to do with money from grandparents for kids?

Post by NotWhoYouThink » Tue Dec 19, 2017 3:48 pm

What problem do you see with the custodial account?

If we were talking about $50K instead of $1K, then maybe you would have reason to be concerned about the kids' legal ownership of the money once they reach whatever age your state specifies. But for $1K, even compounded for a while, how much trouble can they get in? It won't earn enough to create a tax reporting burden. I'd put it in a custodial account, let them know it is there, and involve them in decisions about what to do with it. The older one now, the younger one might not have opinions on the topic yet.

Grt2bOutdoors
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Re: What to do with money from grandparents for kids?

Post by Grt2bOutdoors » Tue Dec 19, 2017 3:57 pm

objectivefunction wrote:
Tue Dec 19, 2017 3:41 pm
I have received $1,000/kid as a gift from grandparents (oldest is 11; youngest 6 months). I have established 529 accounts for each of my children, and they each have varying amounts of money in them. (I'm trying to be equitable given the fact that a $1,000 gift for the 6 month old has a lot longer to compound than for the 11yo.)

For this particular gift, I'd prefer not to put it into the 529 accounts (and I've discussed this with grandpa). I'd like to have the option to fund a gap year and some world travel for my kids, or just give them the money to start a business, or as a wedding gift, etc. To be clear I'm not giving up on saving for college, just wanting have more options.

I'd prefer to keep it simple, but based on my reading, custodial accounts have some drawbacks. I don't want to do anything that would adversely affect financial aid or scholarships. I think that $5,000 is probably not enough to worry about setting up a trust. I could just open a taxable account and invest it, but I'd prefer it to be earmarked and protected for my kids (not that I intend on going bankrupt or raiding their money).

Is the taxable account my best option?
Open a UTMA account, childs name with you as custodian. That is earmarking it for each child, its the child's money, not the custodians.
There are no limitations on what the funds could be used for, so long as it is for child's benefit outside of the normal things parents are responsible for.
I suggest opening a STAR fund at Vanguard - $1K minimum to open, balanced fund, the amount of taxable earnings will not be noticeable to create a taxable situation Or use Charles Schwab, minimum to open is $100. The issue of compounding for the 6 month old vs. 11 y.o. should not be a concern at all, the amounts given were the same, but if you so feel inclined you can make the 11 y.o. "even" down the road by gifting some amount to equate to what 6 month old has or "not". My point is there are many options on the table. The drawbacks you read about are really a non-event - what are you concerned about with a $1K account or even a say $25K account? If you teach the child early on (notify when appropriate) that funds are for "travel, funding a business, home downpayment, pay for school or to pay for their wedding" and drum it into them by reminding them of it from time to time, there should be no concern. Financial aid is another word for "loan". Given that definition, I'd rather liquidate said account rather than borrow money if the cost is usurious. Merit scholarships are not affected by what is in your bank account, it's affected by what your GPA is.
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objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 3:58 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 3:48 pm
What problem do you see with the custodial account?
Mostly what is mentioned here: http://fairmark.com/kids-college/utma/p ... -accounts/. Even the "advantages" of custodial accounts is mostly a discussion of the disadvantages: http://fairmark.com/kids-college/utma/a ... -accounts/. I think mainly the disadvantages are they would be in full control of the money, whereas I'd prefer to be able to have more control over what non-educational uses the money is put to, and the fact that I have to create an account per child and divide up the money, whereas I'd like to have more control over equitable distribution. I suppose I could just prorate what does into each account based on how much I expect it to compound.
NotWhoYouThink wrote:
Tue Dec 19, 2017 3:48 pm
If we were talking about $50K instead of $1K, then maybe you would have reason to be concerned about the kids' legal ownership of the money once they reach whatever age your state specifies. But for $1K, even compounded for a while, how much trouble can they get in? It won't earn enough to create a tax reporting burden. I'd put it in a custodial account, let them know it is there, and involve them in decisions about what to do with it. The older one now, the younger one might not have opinions on the topic yet.
It's only $1k now, but this will be a yearly thing. Some years I may just decide to put it into their 529s, but I'm wondering what non-education savings accounts I could use.

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Kenkat
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Re: What to do with money from grandparents for kids?

Post by Kenkat » Tue Dec 19, 2017 4:02 pm

I used to buy I bonds or EE bonds for my kids. EE bond rates are really low now, but I bonds are not too bad still.

NotWhoYouThink
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Re: What to do with money from grandparents for kids?

Post by NotWhoYouThink » Tue Dec 19, 2017 4:05 pm

If I gave my grandkids $1k each, and then found out that my son-in-law had invested it in an account in his name "but really, I'm going to spend it on the kids, I just don't want them to control it yet" I'd be one unhappy camper. (or a camper, for you Jim Gaffigan fans)

If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.

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Re: What to do with money from grandparents for kids?

Post by Grt2bOutdoors » Tue Dec 19, 2017 4:08 pm

objectivefunction wrote:
Tue Dec 19, 2017 3:58 pm
NotWhoYouThink wrote:
Tue Dec 19, 2017 3:48 pm
What problem do you see with the custodial account?
Mostly what is mentioned here: http://fairmark.com/kids-college/utma/p ... -accounts/. Even the "advantages" of custodial accounts is mostly a discussion of the disadvantages: http://fairmark.com/kids-college/utma/a ... -accounts/. I think mainly the disadvantages are they would be in full control of the money, whereas I'd prefer to be able to have more control over what non-educational uses the money is put to, and the fact that I have to create an account per child and divide up the money, whereas I'd like to have more control over equitable distribution. I suppose I could just prorate what does into each account based on how much I expect it to compound.
NotWhoYouThink wrote:
Tue Dec 19, 2017 3:48 pm
If we were talking about $50K instead of $1K, then maybe you would have reason to be concerned about the kids' legal ownership of the money once they reach whatever age your state specifies. But for $1K, even compounded for a while, how much trouble can they get in? It won't earn enough to create a tax reporting burden. I'd put it in a custodial account, let them know it is there, and involve them in decisions about what to do with it. The older one now, the younger one might not have opinions on the topic yet.
It's only $1k now, but this will be a yearly thing. Some years I may just decide to put it into their 529s, but I'm wondering what non-education savings accounts I could use.
The issue of putting a completed gift in your 529 plan is that you are the owner, the same owner (not suggesting that you will do this but you can do it) who has the ability to change the beneficiary to whomever they wish. That may or may not be what the benefactor has in mind at the time of gifting. In my own situation, my f-i-l has been gifting my child what in my mind is a rather generous gift given his limited means each year, those funds are my child's and that money has been put into a UTMA account. I have expressed from the very beginning that the money is for college/business and any money left over can then be used after "launching" for a home/good used car. For a good idea of what it might become worth, use the www.portfoliovisualizer.com tool, enter the fund you want to invest in, select the initial dollar amount, annual contribution amount, the fund name and no rebalancing because you'll be leaving the money alone just reinvesting the dividends. See what it could be worth based on past history. It can be substantial, say $30-$50K over a 20 year investment period or it could be worth half. In 20 years, 30K today is not going to have the same spending capacity it does today after inflation.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Alexa9
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Re: What to do with money from grandparents for kids?

Post by Alexa9 » Tue Dec 19, 2017 4:08 pm

Put it in a taxable account under your name and let them watch it grow as a lesson. I'd suggest they use it as a car fund or home down payment. You may even put it in the 529 anyways and keep track of how much it grows and give them that amount matched when they need it. Unless grandparents specify it to be for hobbies/fun, then that's a different story.

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Re: What to do with money from grandparents for kids?

Post by Grt2bOutdoors » Tue Dec 19, 2017 4:10 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 4:05 pm
If I gave my grandkids $1k each, and then found out that my son-in-law had invested it in an account in his name "but really, I'm going to spend it on the kids, I just don't want them to control it yet" I'd be one unhappy camper. (or a camper, for you Jim Gaffigan fans)

If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.
+1
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Gill
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Re: What to do with money from grandparents for kids?

Post by Gill » Tue Dec 19, 2017 4:15 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 4:05 pm
If I gave my grandkids $1k each, and then found out that my son-in-law had invested it in an account in his name "but really, I'm going to spend it on the kids, I just don't want them to control it yet" I'd be one unhappy camper. (or a camper, for you Jim Gaffigan fans)

If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.
I've beaten this drum for a long time also. It is totally wrong for a parent to take a gift to the child and put it in the parent's own name. The fact that the child is a minor is irrelevant. The money belongs to the child and should be held in the child's name or in a UGMA account for the child.
Gill

objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 4:20 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 4:05 pm
If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.
I'm not sure why I'm reading this as unnecessarily confrontational. My reading of the resources linked from the bogleheads wiki is they do their best to dissuade one from actually opening a custodial account. Thinking long-term and as part of a financial plan that also includes a 529 for each kid, I'm wondering what's the best vehicle for diversifying into non-education savings for my kids. If that's a custodial account, I'm fine with that.

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Re: What to do with money from grandparents for kids?

Post by Grt2bOutdoors » Tue Dec 19, 2017 4:24 pm

Alexa9 wrote:
Tue Dec 19, 2017 4:08 pm
Put it in a taxable account under your name and let them watch it grow as a lesson. I'd suggest they use it as a car fund or home down payment. You may even put it in the 529 anyways and keep track of how much it grows and give them that amount matched when they need it. Unless grandparents specify it to be for hobbies/fun, then that's a different story.
Yes, a lesson that a gift for the child is legally owned by the parent. The real lesson Alexa9 is in the real world there is a term for that, it's called "theft by deception", another term is called "fraud".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 4:29 pm

Gill wrote:
Tue Dec 19, 2017 4:15 pm
I've beaten this drum for a long time also. It is totally wrong for a parent to take a gift to the child and put it in the parent's own name. The fact that the child is a minor is irrelevant. The money belongs to the child and should be held in the child's name or in a UGMA account for the child.
Gill
I've given Grandpa the option of just contributing directly into each kids 529. Grandpa could also directly open custodial accounts or 529s for each kid. I've discussed my intentions with Grandpa, and I'm clear that his intention is the money be for the benefit of the children. I don't feel like there is any need to put fences around the money for my sake, but if it protects the kids money against some liability suit or bankruptcy (who knows what the future holds), I'd rather it be protected.

That all seems to be pushing me towards a custodial account, but I had remembered hearing vaguely they aren't a good vehicle (and specifically from the resources linked in the wiki), so I'm especially interested in what other options are available.

objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 4:51 pm

Kenkat wrote:
Tue Dec 19, 2017 4:02 pm
I used to buy I bonds or EE bonds for my kids. EE bond rates are really low now, but I bonds are not too bad still.
Not a bad idea. I-bonds could be redeemed tax-free to cover education expenses, but they could be redeemed otherwise for non-educational expenses. The drawbacks I see:

1. My income is too high at the moment to get the tax-free education redemption for I-bonds. Of course that could always change between now and when they'd need be redeemed (either the limit goes up or my income goes down or they don't get redeemed for education).
2. I'd have to purchase the I-bonds in my name, which on the one hand is morally reprehensible to some people, and on the other would eat into the $10,000 in I-bonds that I can purchase for myself.
3. They would not appreciate very much. Though that could also be an advantage because I could just purchase $1,000 per kid and expect that money to basically have the same inflation adjusted purchasing power over time.

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Re: What to do with money from grandparents for kids?

Post by JBTX » Tue Dec 19, 2017 4:52 pm

objectivefunction wrote:
Tue Dec 19, 2017 4:29 pm
Gill wrote:
Tue Dec 19, 2017 4:15 pm
I've beaten this drum for a long time also. It is totally wrong for a parent to take a gift to the child and put it in the parent's own name. The fact that the child is a minor is irrelevant. The money belongs to the child and should be held in the child's name or in a UGMA account for the child.
Gill
I've given Grandpa the option of just contributing directly into each kids 529. Grandpa could also directly open custodial accounts or 529s for each kid. I've discussed my intentions with Grandpa, and I'm clear that his intention is the money be for the benefit of the children. I don't feel like there is any need to put fences around the money for my sake, but if it protects the kids money against some liability suit or bankruptcy (who knows what the future holds), I'd rather it be protected.

That all seems to be pushing me towards a custodial account, but I had remembered hearing vaguely they aren't a good vehicle (and specifically from the resources linked in the wiki), so I'm especially interested in what other options are available.
I can only speak for my folks and my wife’s folks but I’m pretty sure they would trust us to use it in the child’s interests, even if that meant putting it in the parents name. Putting it in the kids name does have ramifications in terms of college financial aid eligibility. In the highly unlikely event you have a special needs child it could contribute to the young adult losing eligibility for govt assistance. Plus depending on how the child turns out you may not want him to have free access to thousands of dollars when 18. If I had any concerns at all I’d consult the grandparent and be transparent about what you are doing.

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Doom&Gloom
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Re: What to do with money from grandparents for kids?

Post by Doom&Gloom » Tue Dec 19, 2017 4:53 pm

Gill wrote:
Tue Dec 19, 2017 4:15 pm
NotWhoYouThink wrote:
Tue Dec 19, 2017 4:05 pm
If I gave my grandkids $1k each, and then found out that my son-in-law had invested it in an account in his name "but really, I'm going to spend it on the kids, I just don't want them to control it yet" I'd be one unhappy camper. (or a camper, for you Jim Gaffigan fans)

If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.
I've beaten this drum for a long time also. It is totally wrong for a parent to take a gift to the child and put it in the parent's own name. The fact that the child is a minor is irrelevant. The money belongs to the child and should be held in the child's name or in a UGMA account for the child.
Gill
+2 or +3 or whatever it is by now.

This statement also rubs me the wrong way if OP is intending to "adjust" the $1000/child so it seem more equitable to him:

(I'm trying to be equitable given the fact that a $1,000 gift for the 6 month old has a lot longer to compound than for the 11yo.)

bubbadog
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Re: What to do with money from grandparents for kids?

Post by bubbadog » Tue Dec 19, 2017 5:05 pm

We have UTMA accounts for both of our children ages 17 and 19. We have been depositing grandparent Christmas money in their accounts for years. No problems thus far and we will turn over control of the accounts when they are 21. I am not worried about them "blowing" the money at age 21. The UTMA accounts have given us an opportunity to introduce them to investing at an early age.

objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 5:06 pm

Doom&Gloom wrote:
Tue Dec 19, 2017 4:53 pm
This statement also rubs me the wrong way if OP is intending to "adjust" the $1000/child so it seem more equitable to him:

(I'm trying to be equitable given the fact that a $1,000 gift for the 6 month old has a lot longer to compound than for the 11yo.)
I'm not sure why that should rub you the wrong way? When my 6mo goes to college she'll have more of her education paid for by the $1,000 than my 11yo. Is it fair that my 11yo should have student loans when his grandfather was trying to help provide for his education?

When I mentioned that to my FIL he said, "Oh yeah I hadn't thought of that." There's no funny business going on here. I've discussed it all transparently with my FIL and I'm trying to honor the intent of the gift.

I'd prefer to keep the discussion focused on the facts around savings vehicles, rather than my alleged ethical missteps. The only reason I brought up the equitability, is it is explicitly mentioned as a drawback of UTMA accounts.
A custodial account belongs to only one child. Too often parents set up a custodial account for one child and find that they can’t establish a comparable account for a later child. Perhaps they “hit home runs” with their investing choices for the first account, and now it’s so large they can’t make a “catch-up” gift for the later child. Perhaps they simply don’t have the same resources they had when they established the first child’s account.
from http://fairmark.com/kids-college/utma/p ... -accounts/

NotWhoYouThink
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Re: What to do with money from grandparents for kids?

Post by NotWhoYouThink » Tue Dec 19, 2017 5:09 pm

objectivefunction wrote:
Tue Dec 19, 2017 4:20 pm
NotWhoYouThink wrote:
Tue Dec 19, 2017 4:05 pm
If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.
I'm not sure why I'm reading this as unnecessarily confrontational. My reading of the resources linked from the bogleheads wiki is they do their best to dissuade one from actually opening a custodial account. Thinking long-term and as part of a financial plan that also includes a 529 for each kid, I'm wondering what's the best vehicle for diversifying into non-education savings for my kids. If that's a custodial account, I'm fine with that.
If you want to avoid opening a custodial account, and don't want to put it in the 529 (or Grandpa doesn't want you to put it in the 529) then don't accept the money. The wiki isn't recommending that you take money from your kid and put it in your account, it is recommending that you not give your kid large gifts in the first place. If you allow the kid to accept the gift, it should be in the kid's name. Nothing contradictory at all.

Now some people like giving money to their minor children and are willing to accept the risk that the kid might develop an opiod addiction or attract the attention of a lazy abusive boyfriend, and run off with a few 10s of thousands of dollars on reaching the age of majority. Some know they won't qualify for college financial aid so are not worried about how a 5 or 6 figure UTMA will affect college funding. Some can figure out how to spend down a large account before applying for government aid if a disability develops.

It takes all kinds. Decide which kind you are and act accordingly. But keep it transparent and legal.

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Alexa9
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Re: What to do with money from grandparents for kids?

Post by Alexa9 » Tue Dec 19, 2017 5:16 pm

Grt2bOutdoors wrote:
Tue Dec 19, 2017 4:24 pm
Alexa9 wrote:
Tue Dec 19, 2017 4:08 pm
Put it in a taxable account under your name and let them watch it grow as a lesson. I'd suggest they use it as a car fund or home down payment. You may even put it in the 529 anyways and keep track of how much it grows and give them that amount matched when they need it. Unless grandparents specify it to be for hobbies/fun, then that's a different story.
Yes, a lesson that a gift for the child is legally owned by the parent. The real lesson Alexa9 is in the real world there is a term for that, it's called "theft by deception", another term is called "fraud".
If the grandparents don't specify what the money is for, do whatever you think is right. Unless of course you want them to have Power Wheels and Nintendos. $1,000 is obviously not a responsible gift for a child to do whatever with.

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Re: What to do with money from grandparents for kids?

Post by junior » Tue Dec 19, 2017 5:20 pm

I think you are overthinking this. Unless you have a good reason (I. E. A very specific reason) to think it makes a difference with financial aid just put it in a custodial account.

I think adjusting the amount per kid for market gain is also overthinking it. If one kid needs you to pay for braces and the other doesn't you wouldn't take a toy from the kid with braces and give it to the other kid to adjust things would you?

If one kid gets hand me downs your not going to go into a panic about adjusting for depreciation are you? Don't overthinking things like this.

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Re: What to do with money from grandparents for kids?

Post by halfnine » Tue Dec 19, 2017 5:25 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 4:05 pm
If I gave my grandkids $1k each, and then found out that my son-in-law had invested it in an account in his name "but really, I'm going to spend it on the kids, I just don't want them to control it yet" I'd be one unhappy camper. (or a camper, for you Jim Gaffigan fans)

If you aren't comfortable with money in your kids' names, man (or mom) up and tell the grandparents you can't accept the gift. If you accept it, it belongs to the kid. A 529 is ok, or a custodial account. An account in your name, probably not.
Or you tell the grandparents that you can accept the gift but it is going into an account in your name and is to be earmarked for the kids. Then the grandparents can decide whether they want to gift it or not.

objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 5:26 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 5:09 pm
If you want to avoid opening a custodial account, and don't want to put it in the 529 (or Grandpa doesn't want you to put it in the 529) then don't accept the money.
So what you're saying is it is either 529 or UTMA and there are no other options?

I've always thought of bogleheads as a friendly community, but yikes! Perhaps this will be the last time I try to ask a question here. :(

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Re: What to do with money from grandparents for kids?

Post by winterfan » Tue Dec 19, 2017 5:31 pm

We had a large gift given to my child when she was a toddler by her grandparents. We put it in our taxable account under a completely different stock fund so we can keep it separate from our holdings. I was worried about possible ramifications for college financial aid, if it comes to that. Grandparents said the money was intended to use as a down payment for a home or for college expenses. We will show her the amount when she is old enough to understand.

We also are planning on setting up a minor account at Vanguard for her own savings. Right now her money just sits in the bank earning nothing. It might be nice for her to see how her money can grow if invested.

objectivefunction
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 5:31 pm

junior wrote:
Tue Dec 19, 2017 5:20 pm
If one kid gets hand me downs your not going to go into a panic about adjusting for depreciation are you? Don't overthinking things like this.
I appreciate the comment, because I can overthink things.

I wouldn't make a big deal about paying for braces or hand-me-downs. But if it were a matter of one kid getting an education and the other having loans, or one getting a $10k wedding gift and the other $5k, is it worth worrying about? As it is in my own college savings I'm putting more into my 11yo son's account than the others, because he is closer to needing it. I don't believe that is overthinking.

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Re: What to do with money from grandparents for kids?

Post by lthenderson » Tue Dec 19, 2017 5:35 pm

I keep things simple. I fund the 529 accounts for each child with my own money. Any gift money given to my kids by someone else goes into a savings account in their name for spending as they see fit when they are old enough.

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Re: What to do with money from grandparents for kids?

Post by nolesrule » Tue Dec 19, 2017 5:39 pm

Life isn't always going to be equitable.

My parents had 4 kids. I was the oldest. I got stuck with college loans. The others had help paying for college as my parents' expenses decreased with kids moving out of the house. I turned out fine anyway.

There have been multiple occasions where all 4 of us received gifts or small inheritances in equal amounts, but it never crossed my mind that my little brother, 10 years younger, was getting an unfair advantage.

Put the money in a custodial account. Take care of it properly while its in your custody. When they come of age, it's no longer your responsibility.

winterfan
Posts: 88
Joined: Mon Jan 05, 2015 11:06 am

Re: What to do with money from grandparents for kids?

Post by winterfan » Tue Dec 19, 2017 5:41 pm

objectivefunction wrote:
Tue Dec 19, 2017 5:31 pm

I appreciate the comment, because I can overthink things.

I wouldn't make a big deal about paying for braces or hand-me-downs. But if it were a matter of one kid getting an education and the other having loans, or one getting a $10k wedding gift and the other $5k, is it worth worrying about? As it is in my own college savings I'm putting more into my 11yo son's account than the others, because he is closer to needing it. I don't believe that is overthinking.
Don't overthink it too much. I came from a large family. I had very little in loans because when I went to college my parents weren't making that much and college costs hadn't exploded yet. Different story for the youngest sibling who had a lot more in loans. College costs skyrocketed by the time he was 18 and my parents were making more (plus the other kids had already graduated, so financial aid was reduced too).

I'd argue that my youngest sibling had a more comfortable and lenient upbringing though. :) It all seems to work out.

NotWhoYouThink
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Re: What to do with money from grandparents for kids?

Post by NotWhoYouThink » Tue Dec 19, 2017 5:44 pm

Well, there are Coverdall plans, there are trusts, there are probably other options of course, but I don't think any of them are superior to 529s or UTMAs at this dollar value.

I'm still not sure what problem you see with 529 or UTMA. Do you expect your financial situation to be such that your kids will qualify for need-based financial aid?

I would be willing to bet a good bottle of whisky that an 11 month old today is more likely to either die or grow up to be a substance abuser by age 17 than to both qualify for need-based financial aid and be accepted to a university that offers more than $20k/year of such aid to that student. Heck, I'll make it easier and say a baby born 17 years ago fits that criteria, and you can check the numbers. The point is that it is unlikely that the UTMA will have a material effect on your kids' college aid.

Now if you want to discuss how to invest it, I'd say aggressively. Either all Total Stock Market, or maybe Target Date 2060 fund for the 11 month old, maybe slightly less aggressive for the 11 year old.

And the older child couldn't take on that much college debt, really, it is limited to about $26K for undergraduate for Federal loans, any more requires a co-signer. I hope you would not co-sign such a loan.

objectivefunction
Posts: 127
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Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 5:47 pm

nolesrule wrote:
Tue Dec 19, 2017 5:39 pm
Life isn't always going to be equitable.
Agreed. I want to at least try, but not try too hard. :) The line may be different for different people.

I may not be able to maintain control of this thread, and maybe discussions of equitability are where it should go, but I'm particularly interested if I'm missing any other savings vehicles. It seems like it is either 529, UTMA, or a taxable in the parent's name (and possibly an IRA of some kind) and that's it.

objectivefunction
Posts: 127
Joined: Wed May 04, 2016 10:20 am

Re: What to do with money from grandparents for kids?

Post by objectivefunction » Tue Dec 19, 2017 5:58 pm

NotWhoYouThink wrote:
Tue Dec 19, 2017 5:44 pm
Well, there are Coverdall plans, there are trusts, there are probably other options of course, but I don't think any of them are superior to 529s or UTMAs at this dollar value.

I'm still not sure what problem you see with 529 or UTMA. Do you expect your financial situation to be such that your kids will qualify for need-based financial aid?
The approach I'm trying to take is: I have five children and I'd like to give them all as good a start in life as I can, but I probably won't be able to give them all a free ride through college (nor do I want to, frankly). Some may decide to go to college. Some may not. I may be super rich when the youngest goes to college, or entirely drained of all resources (financial or otherwise) by all the older siblings. I have 529s established for each, and the 529 is a narrowly focused savings vehicle, and I want to continue contributions. I would also like to diversify in a way that hedges against all the things that I cannot know about the future, and gives both me and my kids the best options for using whatever I (with the help of relatives) can sock away for them.

I don't necessarily have a problem with an UTMA, but they have drawbacks (like everything in life). I'm trying to understand the territory and make sure I'm not missing some other options.

DarthSage
Posts: 205
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Re: What to do with money from grandparents for kids?

Post by DarthSage » Tue Dec 19, 2017 6:42 pm

My MIL set up UTMAs for each of my children (now ages 11-22). The older two were set up at the same time with identical amounts--oldest used some money for college, so they no longer have identical balances. Younger two got theirs at different times, have different amounts, nothing approaching what the older two got. It is what it is, it was all what my MIL felt like doing.

She also sent them large checks occasionally. We just put them in "passbook" savings (obviously, nobody's had a passbook in ages). We emphasize that this money is meant for college. If the amount had risen to ~$5k or so, I would have rolled it over, it never got that high.

We started preparing the kids for managing the money when they were 10 or so--telling them it was there, and it was a legacy, and meant to enrich their lives--not to be squandered. We have turned over control to the oldest, and #2 will be 21 in April, so we've been working with him as far as picking investments and so forth.

MIL died over the summer, leaving the kids an insurance payout. Now, they each have several UTMAS. The insurance was in a trust with stipulations on distribution, so the oldest got 25% of her portion, the rest is in 4 individual accounts. We have these invested fairly aggressively--our hope if that the children won't have to tap them for college, we'll fund that ourselves, but then they'll have this money to give them a good start in life.

I guess I see the OP's situation as this: Grandpa wants the grandkids to have this money. If he wanted it earmarked for college, he could have done so, but chose not to. Therefore, I don't think a 529 is the right place for it--if Child #1 gets a full ride, his parents could roll the 529 over for Child #2's use--is that fair? Should Child #1 be penalized for being smart?

I also don't think the money should be put in the parents' name. Even assuming the parent would cut off his own arm before he touched the child's money, it could still be subject to a judgement or something. It's not the parent's money. As to an UTMA counting against a child for financial aid--why is that a bad thing? If your child has money in an account that could be used for college, should they really shield that from the school to get a bigger payout? Is that fair to other students? Maybe I'm too honest for my own good, but I don't like the lesson that this would teach my children--sure, you have money for college, but let's not tell the school!

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