Managing kids money

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Managing kids money

Post by Eagle4Life »

My in-laws want to start gifting my kid money (in what I assume in a UTMA account), but I think they want to keep control of "their" money that they gift. They brought over an insanely complicated investment plan with an advisor for a nominal starting amount of money (think ~$1K). I would assume my wife would be custodian but the papers they brought showed the successor custodian as my SIL who I do not get along with. I explained to my wife a gift should have no strings attached and I don't want anyone but my wife and I to have control over accounts with my kids SSN attached, for tax reporting purposes.

We already have a UTMA account for kid and prefer they just write a check for whatever they want to give and my wife and I will handle the investing part.

Has anyone else had this issue with grandparents giving money? What did you do to bend them to your ways?
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Managing kids money

Post by Grt2bOutdoors »

It does not matter who the custodian is, a gift in an UTMA is a completed transfer from giftor to giftee. The money belongs to child.

That said, have your wife inform the parents that brother is not a viable choice. That ought to make for interesting dinner table conversation. I hold UTMA for my nieces and nephew's, I did not assign a successor custodian, if I go, I expect the monies go with child, not my estate.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
livesoft
Posts: 85971
Joined: Thu Mar 01, 2007 7:00 pm

Re: Managing kids money

Post by livesoft »

Clearly, the grandparents don't want YOU to have any control whatsoever over the money.

In this situation, I would not look a gift horse in the mouth, but you may wish to tell grandparents that their grandchild will be responsible for the tax returns while the grandchild is a minor which means YOU are responsible for the tax returns. You already know this because you are the custodian of a UTMA. So grandparents if they have a UTMA for their grandchild will need to keep you totally informed of its annual income. Since they got some salesrep to deal with, ask them what the salesrep says about the annual taxes that are possible on their gift.

Many grandparents simply assume that a UTMA has no tax return consequences. So they may not even know anything about this.

The alternative for the grandparents would be a 529 plan.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Re: Managing kids money

Post by Eagle4Life »

Grt2bOutdoors wrote:It does not matter who the custodian is, a gift in an UTMA is a completed transfer from giftor to giftee. The money belongs to child.

That said, have your wife inform the parents that brother is not a viable choice. That ought to make for interesting dinner table conversation. I hold UTMA for my nieces and nephew's, I did not assign a successor custodian, if I go, I expect the monies go with child, not my estate.
Unless the parents of niece/nephew are reckless with money why would you not let the parents be custodians?
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Re: Managing kids money

Post by Eagle4Life »

livesoft wrote:Clearly, the grandparents don't want YOU to have any control whatsoever over the money.

In this situation, I would not look a gift horse in the mouth, but you may wish to tell grandparents that their grandchild will be responsible for the tax returns while the grandchild is a minor which means YOU are responsible for the tax returns. You already know this because you are the custodian of a UTMA. So grandparents if they have a UTMA for their grandchild will need to keep you totally informed of its annual income. Since they got some salesrep to deal with, ask them what the salesrep says about the annual taxes that are possible on their gift.

Many grandparents simply assume that a UTMA has no tax return consequences. So they may not even know anything about this.

The alternative for the grandparents would be a 529 plan.
I don't think that's the case. I think it's more they want to have strings attached and their hands in the pot, knowing them. IMO only the parents should be opening and controlling accounts for a child.
Last edited by Eagle4Life on Mon Dec 05, 2016 6:58 am, edited 1 time in total.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Managing kids money

Post by Grt2bOutdoors »

Eagle4Life wrote:
Grt2bOutdoors wrote:It does not matter who the custodian is, a gift in an UTMA is a completed transfer from giftor to giftee. The money belongs to child.

That said, have your wife inform the parents that brother is not a viable choice. That ought to make for interesting dinner table conversation. I hold UTMA for my nieces and nephew's, I did not assign a successor custodian, if I go, I expect the monies go with child, not my estate.
Unless the parents of niece/nephew are reckless with money why would you not let the parents be custodians?
Money is a touchy subject. It is emotional, do not look the gift horse in the mouth, accept it as part of being married. Old saying, when you marry, you marry the family too, remember that!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Re: Managing kids money

Post by Eagle4Life »

Grt2bOutdoors wrote:
Eagle4Life wrote:
Grt2bOutdoors wrote:It does not matter who the custodian is, a gift in an UTMA is a completed transfer from giftor to giftee. The money belongs to child.

That said, have your wife inform the parents that brother is not a viable choice. That ought to make for interesting dinner table conversation. I hold UTMA for my nieces and nephew's, I did not assign a successor custodian, if I go, I expect the monies go with child, not my estate.
Unless the parents of niece/nephew are reckless with money why would you not let the parents be custodians?
Money is a touchy subject. It is emotional, do not look the gift horse in the mouth, accept it as part of being married. Old saying, when you marry, you marry the family too, remember that!
Thanks for not answering my question...
mortfree
Posts: 2965
Joined: Mon Sep 12, 2016 7:06 pm

Re: Managing kids money

Post by mortfree »

Don't give them the SSN.

Tell them that your person advised you to have one account for the kid (make something up). But it really is for tax purposes.

Decline the gift
Mid-40’s
User avatar
MossySF
Posts: 2361
Joined: Thu Apr 19, 2007 9:51 pm
Contact:

Re: Managing kids money

Post by MossySF »

It really depends on the amount of money right?

For $1000 starting amount with some variation of that added annually, shrug -- I probably turn the money down.

For a significantly larger amount (6 figures minimum), I'd try to convince the grandparents to instead switch to a 529 plan or a Vanguard Variable Annuity. For either of these options, there's no additional tax reporting needed. What I'd do is present my own portfolio and investing history to prove I know what I'm talking about.

If they want to keep control, you know what ... they should pay the legal fees to make a trust and have the trust pay annual taxes until the money is finally distributed out. In that kind of scenario, you can pretend the money doesn't exist and there is no extra hassle on your part.
NotWhoYouThink
Posts: 3589
Joined: Fri Dec 26, 2014 3:19 pm

Re: Managing kids money

Post by NotWhoYouThink »

You and your wife have the right and responsibility to know and properly report your children's income for tax purposes. So any account set up for them by your in-laws or anyone else should be set up to allow you and/or your wife to see all the statements.

Other than that, I think your are better off not putting restrictions on the gift. They might put the money in ridiculous investments that generate unnecessary fees and taxes, but so what? It's more money than the kids would have without the gift.

You don't like their investment plan, which means they probably don't like or trust yours. And there is no reason in the world why either of you has to win that battle. It's ok to have wildly different ideas about all manner of things, as long as no one breaks the law or puts anyone else at risk.

In most families, it's best for each spouse do deal with his or her parents and siblings. So as long as your wife has insight into the account, what legal risk do you think you would be running by allowing this gift?
awizard
Posts: 76
Joined: Thu Sep 08, 2016 6:27 am

Re: Managing kids money

Post by awizard »

Setup a 529 plan. Send them the codes for adding funds for the childs education. 529 are one of the best, if not the best, place to have funds for a childs future educational expenses that have minimal impact on federal aid.

If they are willing to add to a UTMA account, then they should be ameniable to add to a 529. You can remind them that they can write off the funds added to a 529 come tax time.

I think you need to be careful and make sure all the pushback comes from your wife to her parents. Let her deliver the message.

Also, you should seek more info on complicated investment. I smell lots of hidden fees. You may want to show them how the money will grow in value if placed in 529 plan vs. some complicated structure with high fees. Always make any discussion about what is best for the childs financial future as you will be tapping into their emotions then.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Managing kids money

Post by Grt2bOutdoors »

Eagle4Life wrote:
Grt2bOutdoors wrote:
Eagle4Life wrote:
Grt2bOutdoors wrote:It does not matter who the custodian is, a gift in an UTMA is a completed transfer from giftor to giftee. The money belongs to child.

That said, have your wife inform the parents that brother is not a viable choice. That ought to make for interesting dinner table conversation. I hold UTMA for my nieces and nephew's, I did not assign a successor custodian, if I go, I expect the monies go with child, not my estate.
Unless the parents of niece/nephew are reckless with money why would you not let the parents be custodians?
Money is a touchy subject. It is emotional, do not look the gift horse in the mouth, accept it as part of being married. Old saying, when you marry, you marry the family too, remember that!
Thanks for not answering my question...
The question was answered, you chose to ignore it. You're here because you want reassurance you're correct - let's just say both parties are correct. As I said, money is a touchy subject and it's emotional. You have your feelings and the giftor has their feelings. If you want to know the reason why they aren't assigning the parents as custodians, read the blogs over at this site that discusses UTMA's, there may be a fear on part of giftor that their gift may not reach the kids and instead be used to pay for things that a parent typically pays for or something else, again we come back to "its emotional and behavioral". http://fairmark.com/kids-college/utma/
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
NotWhoYouThink
Posts: 3589
Joined: Fri Dec 26, 2014 3:19 pm

Re: Managing kids money

Post by NotWhoYouThink »

I hold UTMA for my nieces and nephew's, I did not assign a successor custodian
@Grt2bOutdoors, my interpretation is that OP was asking you why you did not let the parents be custodians.
User avatar
rob
Posts: 5233
Joined: Mon Feb 19, 2007 5:49 pm
Location: Here

Re: Managing kids money

Post by rob »

Eagle4Life wrote:I don't think that's the case. I think it's more they want to have strings attached and their hands in the pot, knowing them. IMO only the parents should be opening and controlling accounts for a child.
Agree - I would not let anyone open an account for your kid... the tax hassle is not worth it. You have to know the dividends for a UTMA so you can manage the kids return (if you do one or yours if you include them on yours)... if you tax gaining you still need all that info. For college time, you need to know about UTMA/529 plans etc.

First a gift is a gift... UTMA does not allow strings. 529 plan is somewhat different but UTMA/UGMA are very clear despite the wide spread "abuse" of those accounts.

What they want is a trust..... they can write whatever nuts rules they like.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Managing kids money

Post by Grt2bOutdoors »

NotWhoYouThink wrote:
I hold UTMA for my nieces and nephew's, I did not assign a successor custodian
@Grt2bOutdoors, my interpretation is that OP was asking you why you did not let the parents be custodians.
I am the custodian because I opened the account and planned on making additional gifts to nieces and nephews over time, making the parents custodian would have complicated the management of the account while children were minors. Also, one of the parents is not a good steward of own money with predictable results. :oops: The accounts I am custodian of does not permit a successor to be appointed on any of the documentation the account servicer provided.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Easy Rhino
Posts: 3278
Joined: Sun Aug 05, 2007 11:13 am
Location: San Diego

Re: Managing kids money

Post by Easy Rhino »

Me and my Dad see fairly eye to eye on finances. He wants to trust a little bit of money to my daughter. He offered to contribute some cash to create an UTMA, if I'd set it up with myself as the custodian. I said "fine, but once that happens I'm in charge of it?", and he was cool with it.

Okay, here's what I'd recommend for an UTMA:
* The child is the owner. The child is always the owner.
* The custodian is in charge of the investments. (Until the child is 18/21/25, anyway)

So if your inlaws really want to maintain control, then they should be the custodian themselves. (or get a 529 that they own themselves, then they can change the beneficiary at will).
123
Posts: 10387
Joined: Fri Oct 12, 2012 3:55 pm

Re: Managing kids money

Post by 123 »

There are some little things that you can do that over time may annoy the grandparents enough that they will turn the account management over to your wife (but if there are family issues probably not to you). Since the parents are responsible for the child's tax returns they grandparents should furnish you copy of statements (monthly, quarterly, or however they are issued) as well as any trade confirmations (purchases or sales) so you can properly make any estimated tax adjustments that are necessary for the child as well as be aware of any "wash sale" situations that arise. Due to potential "wash sale" situations it might be a good idea to have the grandparents pre-clear any expected purchases or sales with you to reduce the likelihood of "wash sale" situations.
The closest helping hand is at the end of your own arm.
inbox788
Posts: 8372
Joined: Thu Mar 15, 2012 5:24 pm

Re: Managing kids money

Post by inbox788 »

NotWhoYouThink wrote:Other than that, I think your are better off not putting restrictions on the gift. They might put the money in ridiculous investments that generate unnecessary fees and taxes, but so what? It's more money than the kids would have without the gift.

In most families, it's best for each spouse do deal with his or her parents and siblings. So as long as your wife has insight into the account, what legal risk do you think you would be running by allowing this gift?
This is exactly why OP should DECLINE the offer. Who knows what quagmire of a tax situation you might end up with. You might get lucky if the simplest problem you have has to do with WASH SALES. I imagine there are quite a lot of worse complications possible. I'm not familiar with MLPs, K-1 or possible multi-state filing, and I've got no interest in learning about them, but you could be unwittingly placed in that situation after the fact...not worth the headaches.
Lafder
Posts: 4117
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Managing kids money

Post by Lafder »

I would thank them for their interest in helping their grandkids' financial future!

Ask if they can/suggest they set up a TOD (transfer on death) or POD (pay on death) account that is in their names with the kids as beneficiaries. That way it is in their name, not your kids. No issue with reporting on your kids social security number, grandparents have complete control. They can always gift it sooner than when they pass if that is their wishes.

The downside is they can decide not to give it to the kids, or spend it on themselves since it is truly their own money til they are gone or gift it.

More complexity is only needed if it becomes a large amount of money. Starting with $1000, a simple TOD or POD account may be the simplest.Kids' social security numbers may still be needed, or at least date of birth.

I agree with comments above that I would prefer the money be given directly to my kids for me to control. But I am responsible with $. At least I think I am! That would not work with all parents.

lafder
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Re: Managing kids money

Post by Eagle4Life »

Thanks for all the responses, very helpful insight.
jfave33
Posts: 3287
Joined: Thu Mar 19, 2015 6:18 pm

Re: Managing kids money

Post by jfave33 »

Just say that the utma or 529 you already have is the only account you are having for the child. If they want to contribute then they can send money to it and give them details on how to contribute. Obviously thank them for their kindness.

Do not let anyone open an account on your child's behalf. You absolutely need to know about it and be the ones looking after it period. No 3rd party involvement such a SIL or grandparents. They can gift but that is all.

If they continue to press then turn them down. No money should have strings attached or it is not worth it.

In the end if they want control they should hold onto it and manage it themselves and leave it directly to the grandchildren in their wills.
donall
Posts: 1078
Joined: Tue Mar 13, 2012 6:45 am

Re: Managing kids money

Post by donall »

I guess I would just have grandparents set-up the account however they want,as taxes should not have to be an issue for quite a while (dividends over $1000 are taxable for child). Hopefully over the years the trust issue improves. The 529 plan sounds like a good idea. What is important is that the grandparents want to help.
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Re: Managing kids money

Post by Eagle4Life »

donall wrote:I guess I would just have grandparents set-up the account however they want,as taxes should not have to be an issue for quite a while (dividends over $1000 are taxable for child). Hopefully over the years the trust issue improves. The 529 plan sounds like a good idea. What is important is that the grandparents want to help.
True taxes won't impact anything with 1K but we would still need to be able to track it. I try to manage our taxes and come as close to zero refund as possible and need to have insight into any accounts that would impact our tax return.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Managing kids money

Post by Grt2bOutdoors »

Eagle4Life wrote:
donall wrote:I guess I would just have grandparents set-up the account however they want,as taxes should not have to be an issue for quite a while (dividends over $1000 are taxable for child). Hopefully over the years the trust issue improves. The 529 plan sounds like a good idea. What is important is that the grandparents want to help.
True taxes won't impact anything with 1K but we would still need to be able to track it. I try to manage our taxes and come as close to zero refund as possible and need to have insight into any accounts that would impact our tax return.
File a tax return for the child, unearned income up to $1,050 per year is tax-exempt, also if you declare another $1,050 in capital gains, there is no tax for that either. So a total of $2,100 in income can be declared this year and the tax is zip. You will need a significant amount of money to generate that level of income close to 6 figures if you are invested in index based funds. However, if you are a frequent trader, then of course you might be broach that $2,100 in income with less money under management.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
White Coat Investor
Posts: 17338
Joined: Fri Mar 02, 2007 8:11 pm
Location: Greatest Snow On Earth

Re: Managing kids money

Post by White Coat Investor »

Cool dilemma!

Those of us who are personal finance geeks love new problems like this one.

My suggestion, for grandparents who wish to keep control, is to do a 529 (which they will control indefinitely and has no tax consequences for you although there are financial aid consequences) instead of an UGMA, (which the child will control starting at age 18/21, has tax consequences for you, and has worse financial aid consequences.)

Obviously a complex $1K portfolio is also dumb.

And yes, you're in control. They can't open anything without you providing the SSN. I tried to open 529s for all my nieces and nephew (almost 40 of them). Of our combined 10 siblings, 2 didn't provide social security numbers/ignored the emails. Their kids don't get 529s from us. Their choice. No skin off my nose.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Nearly A Moose
Posts: 1237
Joined: Fri Apr 22, 2016 5:28 pm

Re: Managing kids money

Post by Nearly A Moose »

I would have the same discomfort as you do regarding someone else managing the account, but I also agree with the thought that, financially speaking, even a poorly managed gift is better than no gift. I would be most concerned with (1) SIL not providing you clear, complete, and timely information; and (2) your in laws' fancy pants advisor getting you into exotic investments that complicate taxes. Before we parted ways, my old advisor went through a commodities partnership phase that made taxes simply maddening. I'm not familiar enough with UTMAs, but is there any way you could get restrictions placed on the type of investments that may be used in the account?
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
Nearly A Moose
Posts: 1237
Joined: Fri Apr 22, 2016 5:28 pm

Re: Managing kids money

Post by Nearly A Moose »

PS - Not questioning your description of the dynamic, but I have seen UTMAs managed inappropriately by parent custodians. It's hard to watch. Aren't there also tax consequences if the parents administers the account?
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
donall
Posts: 1078
Joined: Tue Mar 13, 2012 6:45 am

Re: Managing kids money

Post by donall »

Eagle4Life wrote:
donall wrote:I guess I would just have grandparents set-up the account however they want,as taxes should not have to be an issue for quite a while (dividends over $1000 are taxable for child). Hopefully over the years the trust issue improves. The 529 plan sounds like a good idea. What is important is that the grandparents want to help.
True taxes won't impact anything with 1K but we would still need to be able to track it. I try to manage our taxes and come as close to zero refund as possible and need to have insight into any accounts that would impact our tax return.
Most important is your child. Second is your family relationships. Taxes should be way down the list of importance as there should never be a tax liability with the small amount of passive income this generates if $1K/yr is gifted to child. Account statements should be shared, but then there is this funky family dynamic to deal with first. Your child has the opportunity to receive a gift from his grandparents, yet you are threatening to not provide a ss number? Sheesh :oops:
Topic Author
Eagle4Life
Posts: 61
Joined: Fri Aug 05, 2016 8:08 pm

Re: Managing kids money

Post by Eagle4Life »

donall wrote:
Eagle4Life wrote:
donall wrote:I guess I would just have grandparents set-up the account however they want,as taxes should not have to be an issue for quite a while (dividends over $1000 are taxable for child). Hopefully over the years the trust issue improves. The 529 plan sounds like a good idea. What is important is that the grandparents want to help.
True taxes won't impact anything with 1K but we would still need to be able to track it. I try to manage our taxes and come as close to zero refund as possible and need to have insight into any accounts that would impact our tax return.
Most important is your child. Second is your family relationships. Taxes should be way down the list of importance as there should never be a tax liability with the small amount of passive income this generates if $1K/yr is gifted to child. Account statements should be shared, but then there is this funky family dynamic to deal with first. Your child has the opportunity to receive a gift from his grandparents, yet you are threatening to not provide a ss number? Sheesh :oops:
My issue is not about taxes on $1K, but the record keeping becomes a pain if we don't have access to the account.
NotWhoYouThink
Posts: 3589
Joined: Fri Dec 26, 2014 3:19 pm

Re: Managing kids money

Post by NotWhoYouThink »

I agree you need statements, or rather that your wife does. Earnings might not amount to much now, but they can grow, so you need to start off on the right foot. Families are funny about money and communication. If your wife can convince her parents that she needs the insight so that you two can uphold your legal responsibilities, then this can work.

My inlaws gave my kids all kinds of things I didn't think they needed, but they did it out of love. If your in-laws want to give your kids weird investments, it's probably best to try to let them. You'll never
bend them to your ways
, but maybe you can learn to coexist.

Good luck.
delamer
Posts: 17348
Joined: Tue Feb 08, 2011 5:13 pm

Re: Managing kids money

Post by delamer »

Eagle4Life wrote:
donall wrote:
Eagle4Life wrote:
donall wrote:I guess I would just have grandparents set-up the account however they want,as taxes should not have to be an issue for quite a while (dividends over $1000 are taxable for child). Hopefully over the years the trust issue improves. The 529 plan sounds like a good idea. What is important is that the grandparents want to help.
True taxes won't impact anything with 1K but we would still need to be able to track it. I try to manage our taxes and come as close to zero refund as possible and need to have insight into any accounts that would impact our tax return.
Most important is your child. Second is your family relationships. Taxes should be way down the list of importance as there should never be a tax liability with the small amount of passive income this generates if $1K/yr is gifted to child. Account statements should be shared, but then there is this funky family dynamic to deal with first. Your child has the opportunity to receive a gift from his grandparents, yet you are threatening to not provide a ss number? Sheesh :oops:
My issue is not about taxes on $1K, but the record keeping becomes a pain if we don't have access to the account.
Over time, if your in-laws continue to contribute to the account, it could become a tax issue. And you could end up having to pay taxes out if your own funds on some ill-chosen investments for your kids.

My in-laws opened UTMA accounts for our kids and choose the initial investment (mutual funds). But their son, my husband, was the custodian. So we could manage the funds going forward as we saw fit and in conjunction with our other investments for their education.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Post Reply