Had a baby and received generous check from her great grandparents. Now what?

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dentite
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Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 3:13 pm

Hello, my wife and I had a baby 6 weeks ago! Wow, exhausting. Anyway, my wife's grandfather sent a generous check. The check cannot be put into our account because that would enact a gift taxes event for the person giving the money. We also want to do something with the check for our daughter's future. So here is the question... Do we start a 529 and put all the money towards that - send the check directly to the 529 to deposit or do we start a savings account at a brick and mortar bank then deposit the money from the brick and mortar bank to the 529? Should we consider some of the online banks with good savings account interest rates? My wife and I currently have our savings account in a nice online bank account at 2.25% monthly interest. Our daughter obviously does not require a checking account but perhaps putting the money into a local credit union would be good? What are your thoughts? Thanks in advance for your advice.

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lthenderson
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by lthenderson » Mon Feb 17, 2020 3:16 pm

dentite wrote:
Mon Feb 17, 2020 3:13 pm
my wife's grandfather sent a generous check. The check cannot be put into our account because that would enact a gift taxes event for the person giving the money.
He sent you a $11.4 million dollar check? You are probably confusing the $15,000 annual rule that just subtracts from the $11.4 million total lifetime exemption.

We have savings account for both our daughters set up and any money given to us on their behalf generally gets deposited in that account since we already have 529's setup. They can use that money as they see fit once they get into college.
Last edited by lthenderson on Mon Feb 17, 2020 3:19 pm, edited 1 time in total.

Gill
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Gill » Mon Feb 17, 2020 3:19 pm

lthenderson wrote:
Mon Feb 17, 2020 3:16 pm
dentite wrote:
Mon Feb 17, 2020 3:13 pm
my wife's grandfather sent a generous check. The check cannot be put into our account because that would enact a gift taxes event for the person giving the money.
He sent you a $11.4 million dollar check? You are probably confusing the $15,000 annual rule that just subtracts from the $11.4 million total lifetime exemption.
Gift taxes have nothing to do with it. The parents should not put it into their account because it was a gift to the child, not to them. The easiest solution is to open a UTMA.
Gill
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KyleAAA » Mon Feb 17, 2020 3:25 pm

It seems like there's some confusion around gift tax, what it is, and who owes it. Unless your wife's grandfather wrote a check for tens of millions of dollars, no gift tax will likely be owed. If it's greater than $15k, he'll need to fill out a form. He won't owe any taxes, just needs to fill out the form. The account the check is deposited into makes no difference. A 529 might give your wife's grandfather a state tax deduction. I set up a 529 for my own son and people have contributed to it.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by LadyGeek » Mon Feb 17, 2020 3:28 pm

The wiki has some background info:

-Uniform Gift to Minors Act
- Accounts for children
- 529 plan
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Topic Author
dentite
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 3:28 pm

Lets forget about the gift taxes. What is the best thing to do for my daughter.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by bmelikia » Mon Feb 17, 2020 3:34 pm

dentite wrote:
Mon Feb 17, 2020 3:28 pm
Lets forget about the gift taxes. What is the best thing to do for my daughter.
My in laws gave our young son a check at Christmas time. Check was in HIS name - we deposited into OUR checking account and opened a 529 and put the money in there. . .the bank said we were allowed to deposit it directly into our account no problem so we did. . .and no problem.

I feel like a 529 is a good place to start. Just my 2 cents
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by FIREchief » Mon Feb 17, 2020 3:35 pm

dentite wrote:
Mon Feb 17, 2020 3:28 pm
Lets forget about the gift taxes. What is the best thing to do for my daughter.
Who was the check made out to? Why do you think that it will result in gift taxes?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by aristotelian » Mon Feb 17, 2020 3:36 pm

lthenderson wrote:
Mon Feb 17, 2020 3:16 pm

He sent you a $11.4 million dollar check?
He did say it was generous.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Mon Feb 17, 2020 3:39 pm

bmelikia wrote:
Mon Feb 17, 2020 3:34 pm
dentite wrote:
Mon Feb 17, 2020 3:28 pm
Lets forget about the gift taxes. What is the best thing to do for my daughter.
My in laws gave our young son a check at Christmas time. Check was in HIS name - we deposited into OUR checking account and opened a 529 and put the money in there. . .the bank said we were allowed to deposit it directly into our account no problem so we did. . .and no problem.

I feel like a 529 is a good place to start. Just my 2 cents
Who is the account owner of the 529 account where the gift ended up? I hope it's a custodial/UTMA 529 account. Otherwise, you did it wrong.

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dentite
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 3:41 pm

Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Brianmcg321 » Mon Feb 17, 2020 3:42 pm

dentite wrote:
Mon Feb 17, 2020 3:28 pm
Lets forget about the gift taxes. What is the best thing to do for my daughter.
I would put it in a UTMA account.

Then you can give it to her upon graduation.

Vanguard Balanced Index would be a good choice.
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dentite
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 3:42 pm

So custodial savings account then deposit it into a 529?

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by EddyB » Mon Feb 17, 2020 3:43 pm

dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
UTMA account, whether an UTMA 529 or something else. Key is that it's hers, not yours. Or if it's truly large or you're exceptionally dissatisfied with your state's implementation of UTMA, it may justify creating a trust.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by zonacat » Mon Feb 17, 2020 3:46 pm

1st off - congrats on the baby!

My daughter is 14 months old and we had a similar scenario

I opened up an UTMA at both Ally Bank and Vanguard. Right now the various gifts are invested in the vanguard target retirement 2040 fund. Not terribly worried at current state of the phantom tax potential but eventually might move the underlying investments to ETFs as the account grows in value.

Want the money for my daughter and how she chooses to use it - look at it as both a learning opportunity as well as money for her choosing - college, car, house down payment etc

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by retiringwhen » Mon Feb 17, 2020 3:50 pm

I vote for the 529 plan.

See my story on why the protections of the 529 are important from a custodial perspective: viewtopic.php?f=1&t=265752&p=4247292#p4247292

As an aside, since it is a gift to your daughter though, technically it would need to be configured as a UTMA 529 which sort of defeats the purpose of the protections. Having the grandfather fund the 529 directly is likely the best approach. Who and how that is managed (primarily who is designated as the trustee) is a different issue to consider (not complicated, but decisions need to be made).

nguy44
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by nguy44 » Mon Feb 17, 2020 3:53 pm

you could "split" the amount (in whatever proportion you desire) so that some goes to a 529 for education, some goes to something for therm to use in any way they want when they get older.

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dentite
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 3:54 pm

I always thought 529s were a no brainer. Why choose utma over that?

oldfatguy
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by oldfatguy » Mon Feb 17, 2020 3:56 pm

dentite wrote:
Mon Feb 17, 2020 3:54 pm
I always thought 529s were a no brainer. Why choose utma over that?
A 529 account in your child's name will also be a UTMA account. Any type of account for a minor needs a custodian.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by manatee2005 » Mon Feb 17, 2020 4:08 pm

dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Why did your grandfather think writing the check to your daughters name was a good idea? She’s 6 months old.

Also how big was the check?

Seasonal
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Seasonal » Mon Feb 17, 2020 4:17 pm

Thinking ahead, one consideration is how this will be treated for college financial aid purposes.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Gill » Mon Feb 17, 2020 4:18 pm

manatee2005 wrote:
Mon Feb 17, 2020 4:08 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Why did your grandfather think writing the check to your daughters name was a good idea? She’s 6 months old.

Also how big was the check?
Presumably because he wanted to make a gift to her.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

RetiredArtist
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by RetiredArtist » Mon Feb 17, 2020 4:19 pm

Of course you can gift $15,000/year to anyone, no tax reporting required. But it gets tricky when you write a check out to a minor.
I am gifting my daughter & son in law $15,000/year. (Basically, I received an inheritance that I want to share with them.) I also wanted to gift my toddler grandson. I want the money to be used for his ongoing expenses, and I trust his parents to do so. Last December, my daughter's bank would not accept a check made out to my grandson, so I researched UTMAs. As I told my daughter:

Dear Daughter,
A can of worms has been opened.
It turns out that it was incorrect to deposit my 2017 and 2018 gift checks made out to the Toddler into your account.
A joint account with you, as suggested by your bank, would not have been OK either.
The checks should have been deposited into a custodial account, called an UTMA, titled something like this:
"The Toddler, Minor, by Mother as Custodian under the Uniform Transfer to Minors Act"

Some rules for UTMA accounts:
1. That gift money is legally the Toddler's. You (the custodian) are not allowed to spend it on yourself.
2.To my surprise, you are not allowed to spend it on "parental obligations" such as food, shelter, childcare. (There may be exceptions for emergencies)
3. You can only spend it on "extras" for the Toddler's benefit, such as camp, or extracurricular classes and activities.
4. You are also allowed to spend it on education, beginning with preschool.
5. You are supposed to keep detailed accounting records of income & expenses, and give them to the Toddler when he comes of age (25, I think)
6. You have a fiduciary duty to invest the money wisely.
7. If the account earns more than $1050, you as custodian must file a tax return, or declare the income on your return.
8. When the Toddler grows up, he gains full control of all funds. He could sue you for mingling his gift money with yours for 2017-2018, or for mismanaging it at any point.

For the last 2 years, when the Toddler's gift money was deposited into your account, the IRS could consider that money a gift to you. They could say I gifted you $30,000, and that I should have filed gift tax returns for 2018 & 2017, for going over the $15,000 tax exclusion limit. I will ask my CPA if I should file those returns.

So it's just as well that your bank would not allow you to deposit the Toddler's check. If you want to set up an UTMA, with its attendant restrictions & paperwork requirements, I should write a new check made out to the UTMA. Or perhaps I should start writing monthly checks for the Toddler's preschool.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by manatee2005 » Mon Feb 17, 2020 4:22 pm

Gill wrote:
Mon Feb 17, 2020 4:18 pm
manatee2005 wrote:
Mon Feb 17, 2020 4:08 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Why did your grandfather think writing the check to your daughters name was a good idea? She’s 6 months old.

Also how big was the check?
Presumably because he wanted to make a gift to her.
Gill
She’s six months old. Doesn’t make sense to me.

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by EddyB » Mon Feb 17, 2020 4:26 pm

manatee2005 wrote:
Mon Feb 17, 2020 4:22 pm
Gill wrote:
Mon Feb 17, 2020 4:18 pm
manatee2005 wrote:
Mon Feb 17, 2020 4:08 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Why did your grandfather think writing the check to your daughters name was a good idea? She’s 6 months old.

Also how big was the check?
Presumably because he wanted to make a gift to her.
Gill
She’s six months old. Doesn’t make sense to me.
Because he didn’t want to give to the parents to spend however they wanted? Make more sense?

anon3838
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by anon3838 » Mon Feb 17, 2020 4:27 pm

When my teenage children were born, they each received a gift of $12K from a family member. Now those 2 UTMA accounts are valued at $55K each.

Fidelity or one of the others would be a fine place to open an account...I would first consider where your existing assets are and make this as easy as possible...

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Gill » Mon Feb 17, 2020 4:29 pm

manatee2005 wrote:
Mon Feb 17, 2020 4:22 pm
Gill wrote:
Mon Feb 17, 2020 4:18 pm
manatee2005 wrote:
Mon Feb 17, 2020 4:08 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Why did your grandfather think writing the check to your daughters name was a good idea? She’s 6 months old.

Also how big was the check?
Presumably because he wanted to make a gift to her.
Gill
She’s six months old. Doesn’t make sense to me.
Maximizing growth of the gift, reducing the donor’s estate, using an annual exclusion before it expires, reducing income taxes, and personal satisfaction in making the gift. Likely many other reasons.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KlangFool » Mon Feb 17, 2020 4:30 pm

OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool

cshell2
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by cshell2 » Mon Feb 17, 2020 4:34 pm

Any gifts my kids got went into an UTMA account. If financial aid might be a possibility, money in the student's name is hit really hard unless it's a 529. Then it is assessed at the parent rate which is only a 1/4 of the student one.

Gill
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Gill » Mon Feb 17, 2020 4:40 pm

KlangFool wrote:
Mon Feb 17, 2020 4:30 pm
OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool
Sounds like a well considered plan other than the fact that it is improper to deposit a gift to your children into your own name.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Grt2bOutdoors » Mon Feb 17, 2020 4:43 pm

dentite wrote:
Mon Feb 17, 2020 3:13 pm
Hello, my wife and I had a baby 6 weeks ago! Wow, exhausting. Anyway, my wife's grandfather sent a generous check. The check cannot be put into our account because that would enact a gift taxes event for the person giving the money. We also want to do something with the check for our daughter's future. So here is the question... Do we start a 529 and put all the money towards that - send the check directly to the 529 to deposit or do we start a savings account at a brick and mortar bank then deposit the money from the brick and mortar bank to the 529? Should we consider some of the online banks with good savings account interest rates? My wife and I currently have our savings account in a nice online bank account at 2.25% monthly interest. Our daughter obviously does not require a checking account but perhaps putting the money into a local credit union would be good? What are your thoughts? Thanks in advance for your advice.
Congratulations! 529 Plan or the alternative is a UTMA until you figure out if the child is capable of attending school. If the child is, then you can convert UTMA to a UTMA 529 plan owned by the child with the child as the beneficiary at that time.

Any monetary gifts given to my child have been deposited in an UTMA that I'm custodian of. Upon age of majority in my state AND if the money is not needed for higher education the account will transfer title to the child's name. That is what a completed gift is - the child's not the adults. I understand some parents feel the need to maintain extra control for various reasons, but if it comes down to that, that is what a trust vehicle prepared by a licensed attorney is for - spendthrift trust comes to mind. Not for the parents to keep it in their name.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Grt2bOutdoors » Mon Feb 17, 2020 4:47 pm

Gill wrote:
Mon Feb 17, 2020 4:40 pm
KlangFool wrote:
Mon Feb 17, 2020 4:30 pm
OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool
Sounds like a well considered plan other than the fact that it is improper to deposit a gift to your children into your own name.
Gill
+1
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

oldfatguy
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by oldfatguy » Mon Feb 17, 2020 4:55 pm

Gill wrote:
Mon Feb 17, 2020 4:40 pm
KlangFool wrote:
Mon Feb 17, 2020 4:30 pm
OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool
Sounds like a well considered plan other than the fact that it is improper to deposit a gift to your children into your own name.
Gill
And, if I am understanding it correctly, reporting the money as parent assets on the FAFSA

Grt2bOutdoors
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Grt2bOutdoors » Mon Feb 17, 2020 4:56 pm

Seasonal wrote:
Mon Feb 17, 2020 4:17 pm
Thinking ahead, one consideration is how this will be treated for college financial aid purposes.
Let's just say for hypothetical purposes here, the school at the time of attendance costs exactly $100,000.
Let's also say this child earns scholarships of $15,000 over those same four years.
Net cost before financial aid is $85,000.
The school provides merit aid of $35,000, leaving a net price of $50,000 to be funded over 4 years.

Child's UTMA account is worth $20,000.
School assumes 80% or $16,000 over 4 years and $4,000 of the UTMA can be used in Year 1 to pay for school.
New amount to be financed either through self-help, parents or financial aid is now $8,500 in year 1.
If the child's parents have it saved up great! Even better, the child's parent's have the full $12,500 on hand and the kid can keep the full $4,000 in his/her account!
Last edited by Grt2bOutdoors on Mon Feb 17, 2020 6:09 pm, edited 1 time in total.
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KyleAAA
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KyleAAA » Mon Feb 17, 2020 5:00 pm

What's best for your daughter very much depends on the specifics. If it's $500k I wouldn't advise you to put it in a 529. If it's $10k I would. Each option has differing implications for financial aid.
Last edited by KyleAAA on Mon Feb 17, 2020 7:43 pm, edited 1 time in total.

KlangFool
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KlangFool » Mon Feb 17, 2020 5:02 pm

oldfatguy wrote:
Mon Feb 17, 2020 4:55 pm
Gill wrote:
Mon Feb 17, 2020 4:40 pm
KlangFool wrote:
Mon Feb 17, 2020 4:30 pm
OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool
Sounds like a well considered plan other than the fact that it is improper to deposit a gift to your children into your own name.
Gill
And, if I am understanding it correctly, reporting the money as parent assets on the FAFSA
oldfatguy,

If the parents are poor enough, the money will be gone from the taxable account before the kid started college. If the parents are rich enough, there is no point in filling the FAFSA since they would not qualify for need-based financial aid.

Depending on the amount, the money could be in the kids' Roth IRAs.

KlangFool

oldfatguy
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by oldfatguy » Mon Feb 17, 2020 5:04 pm

KlangFool wrote:
Mon Feb 17, 2020 5:02 pm
oldfatguy wrote:
Mon Feb 17, 2020 4:55 pm
Gill wrote:
Mon Feb 17, 2020 4:40 pm
KlangFool wrote:
Mon Feb 17, 2020 4:30 pm
OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool
Sounds like a well considered plan other than the fact that it is improper to deposit a gift to your children into your own name.
Gill
And, if I am understanding it correctly, reporting the money as parent assets on the FAFSA
oldfatguy,

If the parents are poor enough, the money will be gone from the taxable account before the kid started college. If the parents are rich enough, there is no point in filling the FAFSA since they would not qualify for need-based financial aid.

Depending on the amount, the money could be in the kids' Roth IRAs.

KlangFool
So what did you mean by, "When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts."?

KlangFool
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KlangFool » Mon Feb 17, 2020 5:07 pm

oldfatguy wrote:
Mon Feb 17, 2020 5:04 pm
KlangFool wrote:
Mon Feb 17, 2020 5:02 pm
oldfatguy wrote:
Mon Feb 17, 2020 4:55 pm
Gill wrote:
Mon Feb 17, 2020 4:40 pm
KlangFool wrote:
Mon Feb 17, 2020 4:30 pm
OP,

Unless the amount is big enough to pay for the full 4 years of college education, do not put into the 529 and/or UTMA.

My kids received a few hundred to a thousand every year since they were born. I deposited the money into my Vanguard taxable account and invested in the Vanguard LifeStratefy Growth Fund. When they starting working during Summer, I put the money into their Roth IRA. When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts.

KlangFool
Sounds like a well considered plan other than the fact that it is improper to deposit a gift to your children into your own name.
Gill
And, if I am understanding it correctly, reporting the money as parent assets on the FAFSA
oldfatguy,

If the parents are poor enough, the money will be gone from the taxable account before the kid started college. If the parents are rich enough, there is no point in filling the FAFSA since they would not qualify for need-based financial aid.

Depending on the amount, the money could be in the kids' Roth IRAs.

KlangFool
So what did you mean by, "When they started college and it is confirmed that they do not qualify for any need-based financial aid, they open their own Vanguard account and I transfer the money into their accounts."?
I was employed. My income alone disqualifies them from any need-based financial aid. My kid did receive merit-based scholarships.

KlangFool
Last edited by KlangFool on Mon Feb 17, 2020 5:10 pm, edited 1 time in total.

sailaway
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by sailaway » Mon Feb 17, 2020 5:09 pm

Who was the check made out to?

Although the OP says grandfather, the title says grandparents, which doubles the gift exclusion.

Topic Author
dentite
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 5:16 pm

Ok let me clarify and also complicate.

Clarify: The check is from my child's great grandparents.
Complicate: My child will not be eligible for financial aid as my income is high (healthcare professional) and there may be a 529 which could be transferred to my daughter that was not used up that my wife's parents set up a long time ago.

I'm still thinking setting/contributing to a 529 is smart - at least up to the tax deductible portion. Thoughts?

KlangFool
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KlangFool » Mon Feb 17, 2020 5:23 pm

dentite wrote:
Mon Feb 17, 2020 5:16 pm
Ok let me clarify and also complicate.

Clarify: The check is from my child's great grandparents.
Complicate: My child will not be eligible for financial aid as my income is high (healthcare professional) and there may be a 529 which could be transferred to my daughter that was not used up that my wife's parents set up a long time ago.

I'm still thinking setting/contributing to a 529 is smart - at least up to the tax deductible portion. Thoughts?
dentite,

<<my income is high (healthcare professional) >>

Only if you are employed while the kids go to college. You could be early retired voluntary or involuntary when your kids go to college. My older brother early retired at 49 years old when his kids go to college.

If you tell us that your net worth is high, that is a different story.

KlangFool

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JoeRetire
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by JoeRetire » Mon Feb 17, 2020 5:28 pm

dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Ask Great Grandpa to write a new check in your wife's name.
Create a 529 account with your daughter as beneficiary and put the money there.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

Topic Author
dentite
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 5:30 pm

Net worth when I retire whether voluntary or involuntary will probably be high barring a disaster but I pay a lot to insure against such disaster. I do love what I do so I will probably work for as long as I can. If everything goes according to plan and I work around American retirement age, no financial aid will be awarded.

Topic Author
dentite
Posts: 31
Joined: Sat Dec 08, 2018 8:51 am

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 5:33 pm

JoeRetire wrote:
Mon Feb 17, 2020 5:28 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Ask Great Grandpa to write a new check in your wife's name.
Create a 529 account with your daughter as beneficiary and put the money there.
Lets assume they get confused easily. Writing a new check and voiding the old one is a confusing event. This is not a good option.

KlangFool
Posts: 16686
Joined: Sat Oct 11, 2008 12:35 pm

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by KlangFool » Mon Feb 17, 2020 5:33 pm

dentite wrote:
Mon Feb 17, 2020 5:30 pm
Net worth when I retire whether voluntary or involuntary will probably be high barring a disaster but I pay a lot to insure against such disaster. I do love what I do so I will probably work for as long as I can. If everything goes according to plan and I work around American retirement age, no financial aid will be awarded.
My question is about your current net worth.

KlangFool

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JoeRetire
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by JoeRetire » Mon Feb 17, 2020 5:34 pm

dentite wrote:
Mon Feb 17, 2020 5:33 pm
JoeRetire wrote:
Mon Feb 17, 2020 5:28 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Ask Great Grandpa to write a new check in your wife's name.
Create a 529 account with your daughter as beneficiary and put the money there.
Lets assume they get confused easily. Writing a new check and voiding the old one is a confusing event. This is not a good option.
Does tearing up a check confuse you?

Good luck.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

decapod10
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by decapod10 » Mon Feb 17, 2020 5:37 pm

I think this thread shows why it's not a great idea to write a huge check to a minor without giving some thought to it, however I think there are 2 questions here:

1. What are you legally allowed to do?

I am not a lawyer, but from my internet sleuthing, you as the parent are legally allowed to cash the check, but you are supposed to use the money to benefit the child and not spend it on yourself. And the bank may ask for some sort of documentation that you are in fact the parent. So basically your options include:
- spend the money on the child (e.g. school, activities, etc)
- put it in some sort of custodial account (e.g. UTMA, savings account, etc)
- buy some other sort of asset in the child's name (e.g. savings bond)
- put it in a 529 that parent owns with kid as beneficiary? This gets a bit muddy I'm thinking, since in this case the parent owns the money. Again, I'm not a lawyer, but I'm guessing this would qualify as OK, even though the money is technically still in your name, but I could be wrong. However if you start changing the beneficiary around then probably technically breaking the law, I'm thinking. Again these are just guesses on my part
- rip up the check and have the grandparent open a 529 with the kid as beneficiary

2. What is the best for the child?
This really depends I think. As mentioned, putting money in your child's name in an UTMA for example counts more heavily against financial aid compared to a 529 that you own with child as beneficiary. Putting money in an UTMA also means that the child will eventually get control of all the money with no restrictions unless you spend it (legally of course). 529 accounts have various rules on financial aid eligibility depending on if the parents own it, vs if grandparents/friends/relatives own it. I don't know enough about it to know which is preferable, but they are different and should merit some research I think, especially if this is a large sum of money.

From a legal standpoint, putting the money into a custodial account seems the cleanest solution, though whether it's the "best" I'm not sure.


As a side note, being a healthcare professional (doctor?) may not necessarily prevent you from getting financial aid. This article

https://www.savingforcollege.com/articl ... ancial-aid

suggests that unless you make more than $350k and only have 1 child in college, you may still qualify for financial aid. Of course, you may make several times more than that, but you may not.

Topic Author
dentite
Posts: 31
Joined: Sat Dec 08, 2018 8:51 am

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 5:38 pm

KlangFool wrote:
Mon Feb 17, 2020 5:33 pm
dentite wrote:
Mon Feb 17, 2020 5:30 pm
Net worth when I retire whether voluntary or involuntary will probably be high barring a disaster but I pay a lot to insure against such disaster. I do love what I do so I will probably work for as long as I can. If everything goes according to plan and I work around American retirement age, no financial aid will be awarded.
My question is about your current net worth.

KlangFool
Depends what high is to you but if you are going by age, net income, investments, and savings then yes currently high.

Topic Author
dentite
Posts: 31
Joined: Sat Dec 08, 2018 8:51 am

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by dentite » Mon Feb 17, 2020 5:41 pm

JoeRetire wrote:
Mon Feb 17, 2020 5:34 pm
dentite wrote:
Mon Feb 17, 2020 5:33 pm
JoeRetire wrote:
Mon Feb 17, 2020 5:28 pm
dentite wrote:
Mon Feb 17, 2020 3:41 pm
Everyone is getting hung up on the wrong part of the post. Forget gift tax and generous. The check is made out for my daughter and is for my daughter. I'm still new in personal finance and would like to start her future off on the right foot. And no it is not a million dollar check.
Ask Great Grandpa to write a new check in your wife's name.
Create a 529 account with your daughter as beneficiary and put the money there.
Lets assume they get confused easily. Writing a new check and voiding the old one is a confusing event. This is not a good option.
Does tearing up a check confuse you?

Good luck.
I am not confused at all but you try turning 100 and see what confuses you.

Grt2bOutdoors
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Location: New York

Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Grt2bOutdoors » Mon Feb 17, 2020 6:12 pm

dentite wrote:
Mon Feb 17, 2020 5:16 pm
Ok let me clarify and also complicate.

Clarify: The check is from my child's great grandparents.
Complicate: My child will not be eligible for financial aid as my income is high (healthcare professional) and there may be a 529 which could be transferred to my daughter that was not used up that my wife's parents set up a long time ago.

I'm still thinking setting/contributing to a 529 is smart - at least up to the tax deductible portion. Thoughts?
Do it, but do if for the whole amount of the check. Then what you can do on your own, is open a UTMA or not, and set aside a like amount or an amount less the tax deductible portion and invest it for the child. At age of maturity of your choosing, transfer a like amount of shares from your account to hers.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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