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

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

Post by EddyB » Tue Feb 18, 2020 12:08 pm

bayview wrote:
Tue Feb 18, 2020 11:47 am
EddyB wrote:
Tue Feb 18, 2020 1:04 am
CurlyDave wrote:
Tue Feb 18, 2020 12:41 am
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 not ever use a UTMA account. I have seen these go horribly wrong with friends and neighbors.

The problem is that not all children are as angelic at 18 as they are when born. Control of the money is transferred to the child at exactly the time when some are the most rebellious and headstrong that they will ever be.

If the sum involved is substantial, or may well become substantial in the future, consult a lawyer and set up a trust that you control for the benefit of the child until they are well into their adult years -- 35 or 40.

Nothing should preclude accessing the money earlier for a good reason, like college or a house down payment. But at 18 wanting to buy an expensive car or finance an exotic business venture with a "dreamy" boyfriend are definite possibilities...
I think there are two states where the age of majority for an UTMA account is 18 (and no higher). There are at least half a dozen where it’s 25. Maybe the difference doesn’t matter to you, but might as well be accurate.
https://www.policygenius.com/retirement ... -by-state/

UTMA age is in the far right column.
Thanks, but this is wrong for both of the states in which I've set up UTMA accounts (California and Oregon), so I'm going to suggest that anyone interested should look directly at their state's implementation of UTMA.

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

Post by EddyB » Tue Feb 18, 2020 12:11 pm

bertilak wrote:
Tue Feb 18, 2020 12:04 pm
runner540 wrote:
Tue Feb 18, 2020 11:58 am
bertilak wrote:
Tue Feb 18, 2020 9:52 am
runner540 wrote:
Tue Feb 18, 2020 8:19 am
I understand all those points. Let’s assume that parents and giver trust each other to use the funds for the child).
Federal and state governments will not make that assumption and they are the one who need to be satisfied, for a variety of reasons.
Agreed. But then why does the federal government consider a contribution to a parent owned 529 as a gift to the child...?

When a grandparent contributes directly to parent owned 529, isn’t it counted as a gift to the beneficiary (grandchild), even though parents could change the beneficiary?
All I know is that it makes no sense to make that assumption so it is of no help to the OP.
Right. 529s are a special tax creature, and the tax rules are what they are. No need for them to "make sense" and no point in trying to use them to justify the (possibly well-intentioned) theft that some have suggested on this thread. A moderator already reminded people not to suggest dishonest behavior or "bypassing" the law.

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

Post by decapod10 » Tue Feb 18, 2020 12:17 pm

If OP puts the money in a 529, and the kid either doesn't go to college, or doesn't use up all the funds, I would assume OP would be obligated to take a non-qualified distribution and give it to the kid when they turn 18 (unless the kid gifts it back to the parents). Just another thing to consider that the ultimate outcome may not be all that different from putting the money in an UTMA when it comes to control of the money when the kid becomes an adult.

I guess the big question is whether or not it was legal to put the money in a 529 owned by OP with kid as beneficiary in the first place (while the child was a minor), which I don't know the answer to but I would be very interested to know honestly.
EddyB wrote:
Tue Feb 18, 2020 12:08 pm

Thanks, but this is wrong for both of the states in which I've set up UTMA accounts (California and Oregon), so I'm going to suggest that anyone interested should look directly at their state's implementation of UTMA.
Yes, my understanding is that all states require UTMA to be turned over to the child somewhere between age 18 and 21. In California, it is possible to make the age 25, however this only applies if a trust is created at the time of death (this is my understanding anyway) so not really useful in this scenario. Under normal circumstances, in California it is no later than age 21. I don't know of any states that allow age 25 under "normal" circumstances.

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

Post by EddyB » Tue Feb 18, 2020 12:26 pm

decapod10 wrote:
Tue Feb 18, 2020 12:17 pm

Yes, my understanding is that all states require UTMA to be turned over to the child somewhere between age 18 and 21. In California, it is possible to make the age 25, however this only applies if a trust is created at the time of death (this is my understanding anyway) so not really useful in this scenario. Under normal circumstances, in California it is no later than age 21. I don't know of any states that allow age 25 under "normal" circumstances.
Oregon permits 25 for any "irrevocable gift" if specified by the transferor.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Tue Feb 18, 2020 1:08 pm

decapod10 wrote:
Tue Feb 18, 2020 12:17 pm
If OP puts the money in a 529, and the kid either doesn't go to college, or doesn't use up all the funds, I would assume OP would be obligated to take a non-qualified distribution and give it to the kid when they turn 18 (unless the kid gifts it back to the parents). Just another thing to consider that the ultimate outcome may not be all that different from putting the money in an UTMA when it comes to control of the money when the kid becomes an adult.
If the 529 account is funded with money that was meant to be a gift to the child, the 529 should be opened as a custodial/UTMA account. If the child/beneficiary doesn't go to college or doesn't use up all the funds, the custodianship would end and control of the account would simply be turned over to the child/beneficiary at the appropriate time. It would then be up to the child/beneficiary to decide what to do with any remaining funds. The account could be liquidated in whole or in part, with any resulting tax and penalty paid by the child/beneficiary; the account could be retained by the child/beneficiary for future use by a new beneficiary as designated by the child/beneficiary; or any number of other options.

The bottom line is that absent any further details that the OP can provide, the check written by OP's grandparents to their great-grandchild was an unrestricted gift that out of legal necessity should be managed by a competent adult for the benefit of the child under a trust or UTMA arrangement until, in the case of a UTMA account, the child reaches the age of majority according to the laws of the applicable state.
Last edited by DIFAR31 on Tue Feb 18, 2020 1:24 pm, edited 1 time in total.

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

Post by decapod10 » Tue Feb 18, 2020 1:16 pm

DIFAR31 wrote:
Tue Feb 18, 2020 1:08 pm
decapod10 wrote:
Tue Feb 18, 2020 12:17 pm
If OP puts the money in a 529, and the kid either doesn't go to college, or doesn't use up all the funds, I would assume OP would be obligated to take a non-qualified distribution and give it to the kid when they turn 18 (unless the kid gifts it back to the parents). Just another thing to consider that the ultimate outcome may not be all that different from putting the money in an UTMA when it comes to control of the money when the kid becomes an adult.
If the 529 account is funded with money that was meant to be a gift to the child, the 529 should be opens as a custodial/UTMA account. If the child/beneficiary doesn't go to college or doesn't use up all the funds, the custodianship would end and control of the account would simply be turned over to the child/beneficiary at the appropriate time. It would then be up to the child/beneficiary to decide what to do with any remaining funds. The account could be liquidated in whole or in part, with any resulting tax and penalty paid by the child/beneficiary; the account could be retained by the child/beneficiary for future use by a new beneficiary as designated by the child/beneficiary; or any number of other options.

The bottom line is that absent any further details that the OP can provide, the check written by OP's grandparents to their great-grandchild was an unrestricted gift that out of legal necessity should be managed by a competent adult for the benefit of the child under a trust or UTMA arrangement until, in the case of a UTMA account, the child reaches the age of majority according to the laws of the applicable state.
So, sounds like your position is that either 1) Putting the money in a parent owned 529 with child as beneficiary or 2) Holding the money in parental savings until it can be given to them in some other fashion (like the Roth IRA scenario mentioned above) would like be illegal? In other words, the money should be put into a custodial account of some kind (whether UTMA, UTMA 529, trust, or other vehicle) sooner rather than later? Good for me to know in case I am ever in a similar situation.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Tue Feb 18, 2020 1:23 pm

decapod10 wrote:
Tue Feb 18, 2020 1:16 pm
So, sounds like your position is that either 1) Putting the money in a parent owned 529 with child as beneficiary or 2) Holding the money in parental savings until it can be given to them in some other fashion (like the Roth IRA scenario mentioned above) would like be illegal? In other words, the money should be put into a custodial account of some kind (whether UTMA, UTMA 529, trust, or other vehicle) sooner rather than later? Good for me to know in case I am ever in a similar situation.
Yes, if the intent of the gift giver was to make an unrestricted gift to the child.

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

Post by Jack FFR1846 » Tue Feb 18, 2020 1:44 pm

Somehow this was never any big deal in my family. I went down to the credit union where I've done business forever and opened "minor" accounts for my kids. I'm joint, so I guess they're custodial accounts. In any case, any checks made out to them went into their account. When each of them turned 18, it became their account to do as they wished. In both their cases, they're using the money to help with college costs.
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decapod10
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by decapod10 » Tue Feb 18, 2020 2:04 pm

Jack FFR1846 wrote:
Tue Feb 18, 2020 1:44 pm
Somehow this was never any big deal in my family. I went down to the credit union where I've done business forever and opened "minor" accounts for my kids. I'm joint, so I guess they're custodial accounts. In any case, any checks made out to them went into their account. When each of them turned 18, it became their account to do as they wished. In both their cases, they're using the money to help with college costs.
Most banks distinguish between "joint" accounts and "custodial" accounts. For joint accounts, the child has access to the money before they are 18. For custodial accounts, the child does not have access to the money and it is completely managed by the custodian until they turn 18/21 or whatever the law is.

When the kid turns 18 (or whatever age dictated by law), the custodial account is supposed to be turned over completely to the child. Typically for a joint account, you continue to have a joint account with the child and the parent together on the account even after the child turns 18.

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

Post by bmelikia » Tue Feb 18, 2020 3:10 pm

DIFAR31 wrote:
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.
I am the owner - my son is the beneficiary. . .don't worry, it'll be fine
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EddyB
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by EddyB » Tue Feb 18, 2020 3:13 pm

bmelikia wrote:
Tue Feb 18, 2020 3:10 pm
DIFAR31 wrote:
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.
I am the owner - my son is the beneficiary. . .don't worry, it'll be fine
Sure, until you go bankrupt and (depending on the laws of your state) "your son's 529" is needlessly lost to your creditors.

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

Post by Minty » Tue Feb 18, 2020 4:18 pm

My two cents: To be sure, the best practice is to deposit a gift to a child in an account owned by the child. But in many cases, the risk is low and the transaction costs not worth it. If grandma gives my 3 year old a $50 for treats on next year's trip to Disney, I am going to put the bill in my wallet, not in an UTMA. I am highly confident that doing so violates no fiduciary duty or civil or criminal law.

In addition, the idea that UTMA funds "belong to the child" while technically true, overlooks a parental custodian's wide discretion to spend the transfer on ordinary support of the child. UTMA § 14(a) ("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.") To a significant degree, the law relies on parents to look out for the best interests of their children.
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DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Tue Feb 18, 2020 4:27 pm

Minty wrote:
Tue Feb 18, 2020 4:18 pm
My two cents: To be sure, the best practice is to deposit a gift to a child in an account owned by the child. But in many cases, the risk is low and the transaction costs not worth it. If grandma gives my 3 year old a $50 for treats on next year's trip to Disney, I am going to put the bill in my wallet, not in an UTMA. I am highly confident that doing so violates no fiduciary duty or civil or criminal law.
Yes, common sense should drive the actions taken based on the facts at hand. A $50 gift and a bill tucked in a parent's wallet is quite different than a child's $15,000 gift (for sake of comparison) deposited in an account owned by a parent.

In addition, the idea that UTMA funds "belong to the child" while technically true, overlooks a parental custodian's wide discretion to spend the transfer on ordinary support of the child. UTMA § 14(a) ("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.") To a significant degree, the law relies on parents to look out for the best interests of their children.
UTMA statutes are state enacted and differ from state to state, sometimes by a lot and sometimes by a little. In other words, if you want to know how the act works in your state, look in your state's statutes.

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

Post by Grt2bOutdoors » Tue Feb 18, 2020 7:19 pm

runner540 wrote:
Tue Feb 18, 2020 8:19 am
Grt2bOutdoors wrote:
Tue Feb 18, 2020 6:00 am
runner540 wrote:
Mon Feb 17, 2020 11:19 pm
Grt2bOutdoors wrote:
Mon Feb 17, 2020 10:53 pm
runner540 wrote:
Mon Feb 17, 2020 9:48 pm


Help! what do I need to do to be allowed to deposit gifts to the child into a 529? Is every 529 account automatically an UTMA or do I need to specifically designate that? Do I set up a parent 529 that we put money into, and a separate one for gifts to be put into??
No, when you open a 529 plan you have two choices - you as the owner name a beneficiary, you own the assets and the account, you can change the beneficiary at any time. A UTMA 529 plan is owned by the minor, the beneficiary is the minor, you are the custodian. To get the money into the account, you can either make check payable as the 529 plan specified or use your bank account to transmit the funds via automated clearing house electronically. Verify with the 529 plan how to best execute the transfer.
Thanks. I’m still confused. I understood that parent contributions to a 529 account with parent as owner and child as beneficiary, count as gifts to the child. So why is that not also an appropriate location to put other people’s gifts to the child? Why do those have to go into a custodial account?
A gift from someone outside of your family is NOT to you. If the 529 plan owner is you, that means you retain ownership of the assets and you control who is the ultimate owner of those assets by virtue of your ability to designate the beneficiary or your ability to withdraw from the account on a partial or absolute basis of all principal and earnings doing anything you wish with the proceeds.

A UTMA is restrictive in that the monies in that account legally belong to the child, the custodian is a fiduciary responsible for prudently watching over the account until such time as title passes to the now adult child - you don’t have the right to withdraw monies for your own needs including that of normal parental duties, nor do you have the right to change beneficiary, ever.

When a gift is given to the child for say a birthday was it given to you as in “happy Birthday Baby Jane Doe, Dad here is $20 for you to own?” Not likely.

Yes, funds from you to your immediate child is a gift but the gift is from you to child. It is not a gift from a third party to you and then the child.
I understand all those points. Let’s assume that parents and giver trust each other to use the funds for the child).

What I still don’t get is the double standard for 529s with parent as owner and child as beneficiary:
1. parents put money in the 529, and that is considered enough of a transfer to the child that gift tax limits apply.
2. when parents deposit third party gifts for the child in the same account, many posters say this is wrong/fraudulent because it is still in parent’s control
Look, it's a matter of principle. If the parents and giver trust each other to use the fund for the child, fine - use one 529 plan, no UTMA police is going to show up on your doorstep demanding anything.
I will say, once you do open an UTMA anywhere, the institution will police the account as they did for me when I as custodian was asked to cash a check for my minor child and they asked "who's so and so and why aren't they here to do it themselves" :) , a quick mention of age and who I was and all was well, but I seriously am thinking of moving it from there because their interest rate is an insult to my kid.
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Hug401k
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Hug401k » Tue Feb 18, 2020 9:14 pm

I haven't read all the really complicated comments here. I can just say that when we had a similar situation, we opened a 529 plan- Index Fund, state of NH- version at Fidelity (our state had no tax benefit). I've always deposited checks made out to my kids into my bank account since they don't have one. Then I transfer the money to their 529. My daughter is now 14 and the 529 plan has done very well.

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

Post by Luckywon » Tue Feb 18, 2020 9:18 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.
Take her to visit great grampa very often :D

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

Post by Grt2bOutdoors » Tue Feb 18, 2020 9:24 pm

Luckywon wrote:
Tue Feb 18, 2020 9:18 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.
Take her to visit great grampa very often :D
Excellent idea.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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

Post by Luckywon » Tue Feb 18, 2020 9:28 pm

Grt2bOutdoors wrote:
Tue Feb 18, 2020 9:24 pm
Luckywon wrote:
Tue Feb 18, 2020 9:18 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.
Take her to visit great grampa very often :D
Excellent idea.
Maybe wearing a T-shirt "CASH IS KING" ? :sharebeer

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

Post by bayview » Tue Feb 18, 2020 9:44 pm

All these responses about depositing a check under one’s name, when the check is made out to the kid, not the parent, are pretty discouraging.

Yes, I understand that every single poster here has nothing but the best intentions, but the fact is, this is not YOUR money. It’s your kid’s, and regardless how clunky and inconvenient the reality might be, you have no business putting it in your own account. Again, regardless of how good your intentions are.

Have you really never read of children being financially exploited by their parents? You genuinely don’t understand why laws are the way that they are?
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by LadyGeek » Tue Feb 18, 2020 9:59 pm

Discussions of dishonest behavior or bypassing the law is totally unacceptable.

I removed a post suggesting to deposit the check in the parent's account (and not tell the child).
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FoolMeOnce
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by FoolMeOnce » Tue Feb 18, 2020 10:30 pm

Grt2bOutdoors wrote:
Mon Feb 17, 2020 11:01 pm
helloeveryone wrote:
Mon Feb 17, 2020 10:32 pm
3Fund4Life wrote:
Mon Feb 17, 2020 7:24 pm
We put money given to kids (birthday, gifts, etc.) into UTMAs started at birth. We tax gain harvest these accounts annually, minimizing their taxable gains at transfer.
What does this mean? "We tax gain harvest these accounts annually, minimizing their taxable gains at transfer."

I haven't come across this strategy/terminology in my readings through BH. Thanks!
Each year, you can sell assets with a gain up to the amount of the annual limitation to remain in child’s 10% tax bracket for long term gains and incur a tax of zero dollars. You file a tax return for the minor showing the gain and zero tax owed. Doing so increases the tax basis of the shares owed, do this for each subsequent year until the account holder reached age and transfer into their name occurs. This year the law reverted back to the previous limit of $1,050.
When you sell the shares with gain chosen by specific identification, you swap it for a like fund. For example, sell 40 shares of Total Stock Market Index, buy dollar equivalent of Large Cap index or 500 Index to remain fully invested. You can reverse it the following tax year or you can keep it as your swap fund.
Or just buy the exact same fund immediately...

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

Post by Grt2bOutdoors » Tue Feb 18, 2020 10:42 pm

FoolMeOnce wrote:
Tue Feb 18, 2020 10:30 pm
Grt2bOutdoors wrote:
Mon Feb 17, 2020 11:01 pm
helloeveryone wrote:
Mon Feb 17, 2020 10:32 pm
3Fund4Life wrote:
Mon Feb 17, 2020 7:24 pm
We put money given to kids (birthday, gifts, etc.) into UTMAs started at birth. We tax gain harvest these accounts annually, minimizing their taxable gains at transfer.
What does this mean? "We tax gain harvest these accounts annually, minimizing their taxable gains at transfer."

I haven't come across this strategy/terminology in my readings through BH. Thanks!
Each year, you can sell assets with a gain up to the amount of the annual limitation to remain in child’s 10% tax bracket for long term gains and incur a tax of zero dollars. You file a tax return for the minor showing the gain and zero tax owed. Doing so increases the tax basis of the shares owed, do this for each subsequent year until the account holder reached age and transfer into their name occurs. This year the law reverted back to the previous limit of $1,050.
When you sell the shares with gain chosen by specific identification, you swap it for a like fund. For example, sell 40 shares of Total Stock Market Index, buy dollar equivalent of Large Cap index or 500 Index to remain fully invested. You can reverse it the following tax year or you can keep it as your swap fund.
Or just buy the exact same fund immediately...
You could do that so long as none of the shares sold are in the loss position, if you sell shares with a loss and then take those proceeds and buy back in, you've now run afoul of the wash-sale provisions. My post above did not clarify that point, it should really say "each lot sold must have a gain" instead of sell assets with a gain because one could theoretically be selling shares with losses and gains, but the net effect is that there was a total gain realized but that may or may not result in a wash-sale for some of the lots sold, resulting in a disallowed transaction. However, using a swap fund would eliminate the "wash sale" of buy/sell within 31 days of the transaction.
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Cubicle
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by Cubicle » Tue Feb 18, 2020 11:26 pm

Gill wrote:
Tue Feb 18, 2020 7:12 am
I can’t believe how this thinking seems to perpetuate. The gift is to the child, not to the parent. Appropriating the gift by the parent is tantamount to stealing.
Gill
I guess I'm not seasoned. I automatically default that any parent doesn't set out to steal from their children. I'd have trusted my parents with any money earmarked for me. I would tomorrow as well.

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

Post by Minty » Tue Feb 18, 2020 11:32 pm

bayview wrote:
Tue Feb 18, 2020 9:44 pm
All these responses about depositing a check under one’s name, when the check is made out to the kid, not the parent, are pretty discouraging.

Yes, I understand that every single poster here has nothing but the best intentions, but the fact is, this is not YOUR money. It’s your kid’s, and regardless how clunky and inconvenient the reality might be, you have no business putting it in your own account. Again, regardless of how good your intentions are.

Have you really never read of children being financially exploited by their parents? You genuinely don’t understand why laws are the way that they are?
I completely agree with your sentiment. Indeed, I believe I was ripped off, with a great deal of resulting suffering, of money saved for me and my sister after a grandparent's death, because of a poorly set-up trust. But 45 years later, I'm a lawyer (who admittedly does not work in the field of trusts and estates) and I am not aware of any general rule prohibiting commingling children's assets with those of parents. I am also aware of parents setting up informal arrangements with regard to children's assets being managed for them, and not being liable unless there is theft, self-dealing, or something significant goes sour. There are exceptions, like the Jackie Coogan Act, for example, which in California gives former child actors a special entitlement to the grand sum of 15% of their earnings. But as we say in the law, the exception proves the rule. I believe the general rule is that parents can manage their kids' property, and are not liable unless they do so unreasonably. If others are aware of law which I don't know about, I would be very happy to be educated.
Core Four with nominal bonds and TIPS.

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

Post by bmelikia » Wed Feb 19, 2020 12:36 am

EddyB wrote:
Tue Feb 18, 2020 3:13 pm
bmelikia wrote:
Tue Feb 18, 2020 3:10 pm
DIFAR31 wrote:
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.
I am the owner - my son is the beneficiary. . .don't worry, it'll be fine
Sure, until you go bankrupt and (depending on the laws of your state) "your son's 529" is needlessly lost to your creditors.
You’re right. . .I forgot. . .when I go bankrupt. . .good. . .point. . .
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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

Post by bmelikia » Wed Feb 19, 2020 12:40 am

Cubicle wrote:
Tue Feb 18, 2020 11:26 pm
Gill wrote:
Tue Feb 18, 2020 7:12 am
I can’t believe how this thinking seems to perpetuate. The gift is to the child, not to the parent. Appropriating the gift by the parent is tantamount to stealing.
Gill
I guess I'm not seasoned. I automatically default that any parent doesn't set out to steal from their children. I'd have trusted my parents with any money earmarked for me. I would tomorrow as well.

But okay.
I don’t know-Gill makes a compelling point. . .like remember that time I stole from my son and opened a 529 for him? Yea, I’ve done some pretty messed up things before. . .but that takes the cake
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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

Post by EddyB » Wed Feb 19, 2020 12:54 am

bmelikia wrote:
Wed Feb 19, 2020 12:36 am
EddyB wrote:
Tue Feb 18, 2020 3:13 pm
bmelikia wrote:
Tue Feb 18, 2020 3:10 pm
DIFAR31 wrote:
Mon Feb 17, 2020 3:39 pm
bmelikia wrote:
Mon Feb 17, 2020 3:34 pm


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.
I am the owner - my son is the beneficiary. . .don't worry, it'll be fine
Sure, until you go bankrupt and (depending on the laws of your state) "your son's 529" is needlessly lost to your creditors.
You’re right. . .I forgot. . .when I go bankrupt. . .good. . .point. . .
I hope it works out. But it might not. Of course, if you die with money in that account, the successor owner can change the beneficiary (although we know you won’t). Or maybe you don’t like the kid’s choice of college, and you just won’t withdraw their money from the 529. Maybe you say that’s still unlikely, but there are people talking about just putting the money in their own account. None of them will die with that money in the account and have it pass into their estate?

All of these things happen, and I’m sure they aren’t part of the plan for at least some of the people to whom they happen.

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

Post by Saving$ » Wed Feb 19, 2020 1:34 am

1. Put the money in a UGTM savings or brokerage account. You can always transfer it from the UGTM savings or brokerage to a UGTM 529.

2. Although you may wish to disclose to the minor that there is an account, always be very vague about the amount and where the account is. NEVER tell them

3. Minor grows up and matures, and there are a few possibilities
a. Minor turns into a responsible adult and has needs for the money (pay a portion of college tuition, buy a more reliable car to get to job, etc.) You cough up UGTM money to fund this until UGTM funds are gone.
b. Minor turns into a responsible adult and never needs the money. When minor has their first job, you direct them to start a Roth funded with the UGTM funds until the UGTM is depleted. Even if you do this when the kid is 25+, some financial institutions will require, in addition to kids address and ID (including age), a notarized letter from you agreeing to release control of funds to the kid, since you are custodian on the account.
c. Minor turns out to be an adult who handles money irresponsibly. Kid knows there is UGTM money and demands the money. However the kid does not know how much there is or which of 1000's of financial institutions it is at. keep being vague and deflecting. Before kid turns 18 you transfer the money into a no interest or really low interest account so it does not create tax liability, so there is no 1099 you need to give to the kid for tax reporting. The account is tied to your address and statements continue to go to your email, as they have for years. Eventually this kid will get into a jam and really need larger chunks of money for things you may have paid for yourself if the UGTM was not there - ie rent to prevent eviction, car repair, medical bill, etc. Document (via email to kid) that if kid agrees, issue will be funded from kids account and you need a reply. They will readily agree. Fund the issue via a your credit card directly to the provider and then reimburse yourself from the UGTM. Kid will still not find out where the account is. Rinse & repeat until the money is gone. Even if kid gets indignant, they will not find someone to represent them to litigate against you if you have even a rudimentary paper trail that the money was used for the kid with the kids agreement.
Source: Experience.

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

Post by halfnine » Wed Feb 19, 2020 7:02 am

DIFAR31 wrote:
Tue Feb 18, 2020 4:27 pm
...Yes, common sense should drive the actions taken based on the facts at hand. A $50 gift and a bill tucked in a parent's wallet is quite different than a child's $15,000 gift (for sake of comparison) deposited in an account owned by a parent...
Yes, except to me your $50 is more like 15K and your 15K is more like 150K. Who gets to decide who is right?

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

Post by jajlrajrf » Wed Feb 19, 2020 7:09 am

oldfatguy wrote:
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.
This isn't correct! In the common case, at many brokers, a 529 is not a UTMA, but is owned by the account owner and can be revoked / closed at will. In many cases the account will list the child's name but that's just an account identifier - it doesn't have any legal meaning. If you decide that your (non-UTMA) 529 account labelled "529 - For John Smith" should really be used to fund Mary Jones's education, or even to just buy yourself ice cream accepting the tax hit, you can absolutely do that. This is why "Just deposit the money in a 529" is potentially the wrong thing to do here if the OP isn't careful.

Really, there are two separate issues that need to be handled here:
- There is a gift to the child. What's the best way to transfer ownership?
- Whether/how should a 529 be opened, and how should it be opened?

Here's my answer.
(1) @dentite should immediately open a UTMA or UGMA (they differ slightly, I prefer UTMA) account at the bank or broker of their choice. Given the long timeframes, both Vanguard and Fidelity would do fine. Deposit the complete amount of the check into this account.
(2) Optionally, they should ALSO open a UTMA 529, owned by the child, ideally at the same bank or broker. This gives you the flexibility to transfer none, part, or all of this and future gifts to the child, depending on the amount of funding they need.
(3) Optionally optionally you might also choose to open a 529 that is not a UTMA where you can put your own money, not the money gifted to the child. But that's really beyond the scope of this question.

Everyone saying "I would cash the check myself and manage it on behalf of the child without bothering with a UTMA" is not acting in the child's best interests. Suppose you get into a fight with the kid's other parent and have an affair and a messy divorce? Suppose you get hit by a truck? Suppose you get sued for every penny? You've now entangled money that was rightfully your child's with your own. The only right move here is to put the money in a UTMA directly.

Lastly, I find especially weird the attitude of "Well, what if my kid is a dope fiend when they're 22? I should therefore manage all of their money just in case." I mean, if that happens you have my sincere condolences, but that still doesn't make it right to take their money.
Last edited by jajlrajrf on Wed Feb 19, 2020 7:35 am, edited 4 times in total.

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8foot7
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by 8foot7 » Wed Feb 19, 2020 7:29 am

Feels like this discussion has run its course. There are several things people actually do, most well-intentioned and some pleasantly naive, but only one right answer.

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

Post by happymob » Wed Feb 19, 2020 7:38 am

retiringwhen wrote:
Mon Feb 17, 2020 3:50 pm
Having the grandfather fund the 529 directly is likely the best approach.
It's the newborn's great-grandparents, which makes that option problematic, I think. They need to be both alive and cognizant (or have someone with power of attorney) to handle distribution 18 or more years from now. If they pass, presumably the great-grandkid inherits the 529 plan and you are back to the newborn owning it. Much simpler to have the newborn own it now, via UTMA 529.

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8foot7
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by 8foot7 » Wed Feb 19, 2020 7:42 am

happymob wrote:
Wed Feb 19, 2020 7:38 am
retiringwhen wrote:
Mon Feb 17, 2020 3:50 pm
Having the grandfather fund the 529 directly is likely the best approach.
It's the newborn's great-grandparents, which makes that option problematic, I think. They need to be both alive and cognizant (or have someone with power of attorney) to handle distribution 18 or more years from now. If they pass, presumably the great-grandkid inherits the 529 plan and you are back to the newborn owning it. Much simpler to have the newborn own it now, via UTMA 529.
I think the point was to have the grandfather/great-grandfather just deposit the gift money directly into the 529 and bypass needing the parental accounts at all.

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

Post by happymob » Wed Feb 19, 2020 8:00 am

8foot7 wrote:
Wed Feb 19, 2020 7:42 am
happymob wrote:
Wed Feb 19, 2020 7:38 am
retiringwhen wrote:
Mon Feb 17, 2020 3:50 pm
Having the grandfather fund the 529 directly is likely the best approach.
It's the newborn's great-grandparents, which makes that option problematic, I think. They need to be both alive and cognizant (or have someone with power of attorney) to handle distribution 18 or more years from now. If they pass, presumably the great-grandkid inherits the 529 plan and you are back to the newborn owning it. Much simpler to have the newborn own it now, via UTMA 529.
I think the point was to have the grandfather/great-grandfather just deposit the gift money directly into the 529 and bypass needing the parental accounts at all.
Ah. I was interpreting it as grandparent owned 529 plans are somewhat better for FAFSA purposes if used properly (though we later learned FAFSA is likely not an issue anyway). Due to the presumed age of the great-grandparent(s), the gift should be fully completed now, regardless of how the OP ultimately structures the accounts.

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

Post by retiringwhen » Wed Feb 19, 2020 8:29 am

8foot7 wrote:
Wed Feb 19, 2020 7:42 am
happymob wrote:
Wed Feb 19, 2020 7:38 am
retiringwhen wrote:
Mon Feb 17, 2020 3:50 pm
Having the grandfather fund the 529 directly is likely the best approach.
It's the newborn's great-grandparents, which makes that option problematic, I think. They need to be both alive and cognizant (or have someone with power of attorney) to handle distribution 18 or more years from now. If they pass, presumably the great-grandkid inherits the 529 plan and you are back to the newborn owning it. Much simpler to have the newborn own it now, via UTMA 529.
I think the point was to have the grandfather/great-grandfather just deposit the gift money directly into the 529 and bypass needing the parental accounts at all.
There are two options available to the great-grandparents.
1.) As suggested above, write a check to the baby's a 529 with the baby as the beneficiary, setup by a parent, with the parent as a trustee.
2.) Open a 529 in with the baby as the beneficiary 's name, with a great-grand parent as trustee. Set the Success Trustee to one of the baby's parents. When the grand-parent can no longer administer, trusteeship (control) moves to the parent.

AFAIK, these options have the same tax consequences (treated as a gift to the baby) and are kept out of UTMA accounts (very desirable, i think UTMA's are last resort, see my comment above and read the link if you didn't). They only differ in who controls the 529 account during the donor's lifetime.

BTW, the size of the gift appears to be significant enough that the OP should read up on the Gift Tax implications of any donation over $30,000 ($15,000 if check is not written from a joint account for the both grand-parents.) No tax will be owed at the time, but there may be a need to file a Form 709. And if the great-grandparents have significant assets, there may be estate planning considerations (that is complicated, but any estate over $4-5M should consider the consequences as the law reverts in 2026 to older/lower Estate Tax Exemptions).

I cannot emphasize enough how important it is to avoid UTMA's, they have serious drawbacks and are truly undesirable in most cases.

My story re-linked again for emphasis: viewtopic.php?f=1&t=265752&p=4247292#p4247292

BTW, one of the little known downsides of UTMA accounts is that if the custodian of a UTMA who also funded the account dies, the UTMA account is considered part of the donor's estate (at least for tax purposes and depending on the state possibly for probate purposes)! This was a shocker to me, but I can show you the tax returns to demonstrate the fact.

edited for precision about 529 structure.
Last edited by retiringwhen on Wed Feb 19, 2020 10:44 am, edited 1 time in total.

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

Post by bmelikia » Wed Feb 19, 2020 8:36 am

EddyB wrote:
Wed Feb 19, 2020 12:54 am
bmelikia wrote:
Wed Feb 19, 2020 12:36 am
EddyB wrote:
Tue Feb 18, 2020 3:13 pm
bmelikia wrote:
Tue Feb 18, 2020 3:10 pm
DIFAR31 wrote:
Mon Feb 17, 2020 3:39 pm


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.
I am the owner - my son is the beneficiary. . .don't worry, it'll be fine
Sure, until you go bankrupt and (depending on the laws of your state) "your son's 529" is needlessly lost to your creditors.
You’re right. . .I forgot. . .when I go bankrupt. . .good. . .point. . .
I hope it works out. But it might not. Of course, if you die with money in that account, the successor owner can change the beneficiary (although we know you won’t). Or maybe you don’t like the kid’s choice of college, and you just won’t withdraw their money from the 529. Maybe you say that’s still unlikely, but there are people talking about just putting the money in their own account. None of them will die with that money in the account and have it pass into their estate?

All of these things happen, and I’m sure they aren’t part of the plan for at least some of the people to whom they happen.
EddyB-the risks we take. . .
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle

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

Post by Grt2bOutdoors » Wed Feb 19, 2020 8:40 am

retiringwhen wrote:
Wed Feb 19, 2020 8:29 am


My story re-linked again for emphasis: viewtopic.php?f=1&t=265752&p=4247292#p4247292

BTW, one of the little known downsides of UTMA accounts is that if the custodian of a UTMA who also funded the account dies, the UTMA account is considered part of the donor's estate (at least for tax purposes and depending on the state possibly for probate purposes)! This was a shocker to me, but I can show you the tax returns to demonstrate the fact.
And what if the custodian is not the donor, what if the custodian is actually acting just as the custodian and there were multiple donors where all gifts were concentrated into just one singular UTMA account? Unless we are talking about high six figures, seven figures; these potential concerns will just not materialize for the vast number of people who do utilize this type of account!
"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 » Wed Feb 19, 2020 8:54 am

jajlrajrf wrote:
Wed Feb 19, 2020 7:09 am
oldfatguy wrote:
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.
This isn't correct! In the common case, at many brokers, a 529 is not a UTMA, but is owned by the account owner and can be revoked / closed at will. In many cases the account will list the child's name but that's just an account identifier - it doesn't have any legal meaning. If you decide that your (non-UTMA) 529 account labelled "529 - For John Smith" should really be used to fund Mary Jones's education, or even to just buy yourself ice cream accepting the tax hit, you can absolutely do that. This is why "Just deposit the money in a 529" is potentially the wrong thing to do here if the OP isn't careful.
I think you are referring to a 529 owned by the parent, not the child.

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

Post by retiringwhen » Wed Feb 19, 2020 9:48 am

Grt2bOutdoors wrote:
Wed Feb 19, 2020 8:40 am
And what if the custodian is not the donor, what if the custodian is actually acting just as the custodian and there were multiple donors where all gifts were concentrated into just one singular UTMA account? Unless we are talking about high six figures, seven figures; these potential concerns will just not materialize for the vast number of people who do utilize this type of account!
I am not a tax lawyer, but my understanding for UTMA, if the account custodian is not the donor of the funds, then the funds are not included in the custodian's estate. Partial funding is unclear from my knowledge.

In our case, the funds in the UTMA were held up by probate for nearly a year before my wife was named the custodian (complicated Estate where this was a minor side issue). Since my son was in college at the time of his grandfather's passing (this is a different child then the on described in my other story), it had a material impact on how and when those funds could be used their express intent. A 529 could have mitigated this issue since presumably the grandfather would have named his daughter as the successor trustee.

Approximately 14% of the 18-25 year old population experiences serious addiction issues. Additionally, a non-trivial number experience serious mental health issues. It is the most likely scenario of all those considered here. The 529 is miles ahead in protections for this scenario. Remember in my case, the money in the UTMA account represented a real and present mortal danger to the BENEFICIARY! This issue regularly materializes for people of all means and wealth.

I brought up the UTMA/estate issue because you were arguing that the UTMA had better protections. In reality, 529 and UTMA have similar trade-offs on taxation and asset protections (YMMV based up state of residence).

I hope the OP is ignoring this seriously derailed thread and focuses on working with the donor grandparents to find a good solution that meets the needs and desires of the donors!

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 10:29 am

retiringwhen wrote:
Wed Feb 19, 2020 8:29 am
There are two options available to the great-grandparents.
1.) As suggested above, write a check to the baby's 529 setup by a parent, with the parent as a trustee.
2.) Open a 529 in baby's name, with a great-grand parent as trustee. Set the Success Trustee to one of the baby's parents. When the grand-parent can no longer administer, trusteeship (control) moves to the parent.

AFAIK, these options have the same tax consequences (treated as a gift to the baby) and are kept out of UTMA accounts (very desirable, i think UTMA's are last resort, see my comment above and read the link if you didn't). They only differ in who controls the 529 account during the donor's lifetime.
If by "baby's 529" and "open a 529 in baby's name" you mean a custodial 529 that is owned by the baby/beneficiary, you are talking about a UGMA or UTMA 529.

BTW, one of the little known downsides of UTMA accounts is that if the custodian of a UTMA who also funded the account dies, the UTMA account is considered part of the donor's estate (at least for tax purposes and depending on the state possibly for probate purposes)! This was a shocker to me, but I can show you the tax returns to demonstrate the fact
None of this is true in my state. Since UGMA/UTMA provisions are part of state law, they vary by state. Please post a link to the part of the statute in your state that enacts the ramifications you describe above.

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

Post by retiringwhen » Wed Feb 19, 2020 10:38 am

DIFAR31 wrote:
Wed Feb 19, 2020 10:29 am
retiringwhen wrote:
Wed Feb 19, 2020 8:29 am
There are two options available to the great-grandparents.
1.) As suggested above, write a check to the baby's 529 setup by a parent, with the parent as a trustee.
2.) Open a 529 in baby's name, with a great-grand parent as trustee. Set the Success Trustee to one of the baby's parents. When the grand-parent can no longer administer, trusteeship (control) moves to the parent.

AFAIK, these options have the same tax consequences (treated as a gift to the baby) and are kept out of UTMA accounts (very desirable, i think UTMA's are last resort, see my comment above and read the link if you didn't). They only differ in who controls the 529 account during the donor's lifetime.
If by "baby's 529" and "open a 529 in baby's name" you mean a custodial 529 that is owned by the baby/beneficiary, you are talking about a UGMA or UTMA 529.
Sorry, I was not precise enough, "open an account for the baby's benefit" would better stated (not a UTMA). I believe (my opinion) a UTMA holding a 529 is the worst of both worlds. I would try to avoid it. Do a 529 OR a direct UTMA.

BTW, one of the little known downsides of UTMA accounts is that if the custodian of a UTMA who also funded the account dies, the UTMA account is considered part of the donor's estate (at least for tax purposes and depending on the state possibly for probate purposes)! This was a shocker to me, but I can show you the tax returns to demonstrate the fact
None of this is true in my state. Since UGMA/UTMA provisions are part of state law, they vary by state. Please post a link to the part of the statute in your state that enacts the ramifications you describe above.
From a Federal Estate Tax perspective, the UTMA is included in this case, and from a state perspective, I can only speak to NJ, and it is included in NJ (based upon experience, I am not a tax or estate planning lawyer). Note, I did mention that is varies by state as with so much of this area of law.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 10:42 am

jajlrajrf wrote:
Wed Feb 19, 2020 7:09 am
oldfatguy wrote:
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.
This isn't correct! In the common case, at many brokers, a 529 is not a UTMA, but is owned by the account owner and can be revoked / closed at will. In many cases the account will list the child's name but that's just an account identifier - it doesn't have any legal meaning. If you decide that your (non-UTMA) 529 account labelled "529 - For John Smith" should really be used to fund Mary Jones's education, or even to just buy yourself ice cream accepting the tax hit, you can absolutely do that. This is why "Just deposit the money in a 529" is potentially the wrong thing to do here if the OP isn't careful.
A 529 account is only established as a custodial/UTMA account if the person establishing the account specifically requests this. It's not like some brokers or 529 administrators will just set accounts up this way as a matter of practice. It should be readily clear in both the account set-up process and the normal account documents if the account is a custodial/UTMA account.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 10:53 am

retiringwhen wrote:
Wed Feb 19, 2020 10:38 am
From a Federal Estate Tax perspective, the UTMA is included in this case, and from a state perspective, I can only speak to NJ, and it is included in NJ (based upon experience, I am not a tax or estate planning lawyer). Note, I did mention that is varies by state as with so much of this area of law.
Do you know which part of the NJ statute covers this?

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

Post by retiringwhen » Wed Feb 19, 2020 11:05 am

DIFAR31 wrote:
Wed Feb 19, 2020 10:53 am
retiringwhen wrote:
Wed Feb 19, 2020 10:38 am
From a Federal Estate Tax perspective, the UTMA is included in this case, and from a state perspective, I can only speak to NJ, and it is included in NJ (based upon experience, I am not a tax or estate planning lawyer). Note, I did mention that is varies by state as with so much of this area of law.
Do you know which part of the NJ statute covers this?
See Paragraph 7 of this notice from The Tax Advisor site: https://www.thetaxadviser.com/issues/20 ... r2011.html Relevant text:
The annual gift tax exclusion is available for transfers to UGMA/UTMA accounts, even though the child’s enjoyment of the property is delayed. However, UGMA/UTMA transfers will be included in the donor’s gross estate for estate tax purposes if the donor dies while serving as custodian. The custodial powers constitute a retained power to “alter, amend, or revoke” the transfer under Sec. 2038, causing the property to be included in the donor’s gross estate (Rev. Rul. 59-357). The donor can avoid this risk by not naming himself or herself custodian of the UGMA/UTMA property. However, many parents are willing to accept this risk, which in most cases is small, because they wish to maintain control of the funds and determine how they are invested. As an alternative, the donor can name the nondonor spouse as custodian without triggering Sec. 2038. Even when gift splitting is elected to treat a gift as made half by each spouse, half of the property will not be included in the consenting spouse’s estate if that spouse dies while acting as custodian (Rev. Rul. 74-556).
As to NJ, I don't have info handy, I just have actual experience.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 11:19 am

retiringwhen wrote:
Wed Feb 19, 2020 11:05 am
See Paragraph 7 of this notice from The Tax Advisor site: https://www.thetaxadviser.com/issues/20 ... r2011.html Relevant text:
The annual gift tax exclusion is available for transfers to UGMA/UTMA accounts, even though the child’s enjoyment of the property is delayed. However, UGMA/UTMA transfers will be included in the donor’s gross estate for estate tax purposes if the donor dies while serving as custodian. The custodial powers constitute a retained power to “alter, amend, or revoke” the transfer under Sec. 2038, causing the property to be included in the donor’s gross estate (Rev. Rul. 59-357). The donor can avoid this risk by not naming himself or herself custodian of the UGMA/UTMA property. However, many parents are willing to accept this risk, which in most cases is small, because they wish to maintain control of the funds and determine how they are invested. As an alternative, the donor can name the nondonor spouse as custodian without triggering Sec. 2038. Even when gift splitting is elected to treat a gift as made half by each spouse, half of the property will not be included in the consenting spouse’s estate if that spouse dies while acting as custodian (Rev. Rul. 74-556).
As to NJ, I don't have info handy, I just have actual experience.
That's interesting, as it goes against my understanding that a gift/transfer to a UGMA/UTMA account cannot be altered, emended or revoked. However, as pointed out in the article quoted, there is an easy way to avoid the scenario where the assets in a UGMA/UTMA account are included in the estate of a deceased custodian: simply appoint a custodian who is not the person who has made a gift to the account.
Last edited by DIFAR31 on Wed Feb 19, 2020 11:27 am, 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 » Wed Feb 19, 2020 11:26 am

retiringwhen wrote:
Wed Feb 19, 2020 9:48 am
I am not a tax lawyer, but my understanding for UTMA, if the account custodian is not the donor of the funds, then the funds are not included in the custodian's estate. Partial funding is unclear from my knowledge.
That is correct. It only applies when the custodian is also the donor.
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

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

Post by retiringwhen » Wed Feb 19, 2020 11:28 am

DIFAR31 wrote:
Wed Feb 19, 2020 11:19 am
That's interesting, as it goes against my understanding that a gift/transfer to a UGMA/UTMA account cannot be altered, emended or revoked. However, as pointed out in the article quoted, there is an easy way to avoid the scenario where the assets in a UCMA/UTMA account are included in the estate of a deceased custodian: simply appoint a custodian who is not the person who has made a gift to the account.
Yes, easy fix, but one that few people ever consider and in fact goes against the common intents to control the funds as long a possible. One of the reasons I prefer 529s (if funding education is the goal), this issue is more explicit manageable and the ability to specify successor trustee's makes the transition cleaner.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 11:39 am

retiringwhen wrote:
Wed Feb 19, 2020 11:28 am
DIFAR31 wrote:
Wed Feb 19, 2020 11:19 am
That's interesting, as it goes against my understanding that a gift/transfer to a UGMA/UTMA account cannot be altered, emended or revoked. However, as pointed out in the article quoted, there is an easy way to avoid the scenario where the assets in a UCMA/UTMA account are included in the estate of a deceased custodian: simply appoint a custodian who is not the person who has made a gift to the account.
Yes, easy fix, but one that few people ever consider and in fact goes against the common intents to control the funds as long a possible. One of the reasons I prefer 529s (if funding education is the goal), this issue is more explicit manageable and the ability to specify successor trustee's makes the transition cleaner.
The problem here is that a gift that is specifically intended for one certain individual that is placed in a conventional 529 account (that is, not a custodial/UTMA 529) can easily be used for the benefit of someone else simply by changing the account beneficiary, thereby thwarting the intent of the gift giver.

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

Post by retiringwhen » Wed Feb 19, 2020 11:56 am

DIFAR31 wrote:
Wed Feb 19, 2020 11:39 am
The problem here is that a gift that is specifically intended for one certain individual that is placed in a conventional 529 account (that is, not a custodial/UTMA 529) can easily be used for the benefit of someone else simply by changing the account beneficiary, thereby thwarting the intent of the gift giver.
No solution can replace fundamental trust either in living relationships or beyond the grave. If my Father-in-law got a mulligan for his decision in 1991 (and 529s were available at the time), I am confident he would have chosen the 529 knowing the eventual outcome.

DIFAR31
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Re: Had a baby and received generous check from her great grandparents. Now what?

Post by DIFAR31 » Wed Feb 19, 2020 12:00 pm

retiringwhen wrote:
Wed Feb 19, 2020 11:56 am
No solution can replace fundamental trust either in living relationships or beyond the grave.
Perhaps, but a least with a custodial/UTMA 529 account, the custodian will not be allowed to change the beneficiary. Trust but verify.

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