Conference nyoss1::market_investing

    
    I'm in the same position. Although I have a rental ?income? property. 
    I figure If I can hold onto the rental until year 2010
    (currently opperating at a loss)
    I'll sell it to my 3 kids currently ages 2, 2, and 4, for $1.00 this
    way I mininize my gain. I paid $41k in 1980. Its current value is about
    $135k. They can turn around and sell the house, and use the funds for 
    college. Who knows how the gains/gift laws will read in the future?
    
    steve

    Steve,
    
    	I am pretty sure that "selling" your house for $1.00 will be deemed
    to be a "gift". (i.e. it is not an arm's length transaction).  That's
    the bad news.  The good news is that right now you have a $600K gift
    tax exclusion plus $20k per year per child ($10k for each of you & your 
    wife) which is exempt from being taxes. (Who knows what it'll be in 15 
    years?)
    
    	I usually recommend growth orientated mutual funds for very
    young children for two reasons:  First because there's enough time to
    not worry about short term market ups and downs, and Second, because
    there may not be as much realized "income" each year on which to pay
    taxes.  Remember, up to age 14, the kids pay (after a small deductible),
    taxes AT YOUR MARGINAL RATE.
    
    	Regards,
    				Jeff

    In 1970, I left the US ARMY with a wife and son and started my
    "career"; a daughter soon followed.  My pay was pretty good, then for
    entry level positions, ~250/week.  If anybody had told me that I would
    need approximately $20,000!!! per year (room, board, tuition, expenses)
    for my children's education at a college like Northeastern U., I would
    have laughed at them; I am not laughing now, just writing checks. 
    There is no way possible for us to have put away that kind of money.
    
    We had all of the same money problems, rent (mortgage), taxes,
    childcare, etc.  Keep out of debt wherever possible; a house is
    normally a good investment since the payments will stay relatively
    stable as you income increases; and you will need cars, but cars are a
    horrible investment due to depreciation - buy only what you need.  Put
    money away each week and treat that as your first bill to be paid.  If
    you keep your debts down, you will see an increase in disposable income
    after every raise in salary - put that away.  The results are minimally
    incremental, but after 15 years, you notice that you have a lot more of
    your pay to spend and that you can see ways to handle tuition payments,
    even if you need to take out loans and just make the monthly payments.
    
    We have always had a close family so the plan was/is that the first to
    graduate (my wife, actually) would start paying back the tuition and
    the family would use that to cover the next to attend and so forth. 
    The last to graduate returns your original investment. Of course, if
    one graduates and thumbs his/her nose at paying back the tuition (as
    happens in all too many families) you are out of luck. 
    
    Take the time to research avenues of support such as academic and
    sports sholarships, ROTC, and service acadamies (free tuition).  Also,
    keep in mind that if your child graduates from high school and moves out
    of your house and is on his/her own for 2 years (they look at your tax
    forms to verify you are not claiming the child), the child often
    qualifies for grants.  That 2 years could be a stint in one of the
    services adding GI Bill education assistance to the pot.
    
    Good luck
    
    Dave

    I would have to agree with .2 on investing in growth mutual funds. We
    have invested our son's (currently 2 years old) college money in the
    ULTRA fund. Now, it is a very volatile fund and we know that. But,
    based on its past performance, we are confident this fund will do well
    in the long run. Besides, we have at least 16 years to watch it grow. 
    If we can get an average of 10% annual return on the money, it beats
    buying any government bonds. 
    
    Mike 

    SUBWAY::INVESTING is the archive of the previous version of this
    conference.  It has a lot on college funding: open it up and do
    "dir/title=college" or "search college". 
    
    Standard advice is save a little every week and put it in stock
    funds oriented towards aggressive growth; when child turns 15 or
    16 start converting it to less aggressive funds and cash.
    
    Cynical advice is that the laws and rules will change, but if you
    have money, the colleges and the govenment will certainly expect you
    to spend it, while if you don't have money you may get lots of help.
    And then there's "asset gaming", where you careful tailor your 
    assets so you look poor enough to get assistance.  There's stuff 
    about this in the old conference, too.
    
    Personally, I don't believe that college tuitions will continue to
    grow faster than per-capita income, so I ignore the terror-tuition
    predictions, but there's no guarantee I'm right!
    
    		-John Bishop

    There's also MOIRA::PARENTING (and the previous version at
    DLOACT::PARENTING_V3).  There's a lot about funding colleges
    in those conferences.
    
    		-John Bishop

    Re: .0
    
    I can understand your concern.  That's why although both my
    husband and I love kids, we just don't have the courage to have
    the 3rd.  Our kids are now 4 and 2.  We invest heavily and 
    regularly in growth mutual funds.  We also put the max in our
    401K plans.  Even though we are doing our best, I am not sure
    we can pay for the colleges and then have enough retirement money left.
    Our kids definitely have to pay their shares when time comes.
    
    Wendy

When investing in additional mutual funds, should the funds be in our
names or our children's names? I'm getting mixed information about what
the tax implications are.

    re: .8
    
    If you are investing for your children's college, tax shouldn't be your
    major consideration. If you are putting money under your children's
    names to lower your taxes, then it's a whole different story. My
    personal feeling is that for children's college funds, it's best if the
    money is under the parents' names. Especially, if you invest in growth
    funds, there shouldn't be much tax implications anyway - until you cash
    out.  
    
    Mike

    It's mixed because it depends.  I am not a lawyer, but here's
    what I understand the situation to be; consult an expert if
    you have any substantial amount at stake:
    
    If you invest in your name, you pay taxes at what will mostly
    be a higher rate (based on the existence of your other income);
    but you will be assumed by the college funding people to spend
    a smaller amount of the total each year--if they don't change
    their rules!  Finally, you keep control of the money, which is
    an important consideration.  But the money is yours--if you
    can't keep your hands off or you lose a court case (or even if
    you win!) it can vanish.
    
    If you invest in the child's name, taxes are lower (some amount
    is taxed at the child's rate--i.e. not much--but over that limit
    taxes are assesed at your marginal rate), and the forms are much
    more complicated.  The current college funding rules will cause
    much more of these assets to be used up each year, and you have
    _lost_control_ of this money as soon as the child turns 18.  The
    only win here is the tax gain on income under the limit ($1000?).
    The money isn't yours, so it's a bit protected.
    
    Or you can set up a trust, which will pay taxes at its own rate
    (like another individual, but with not much income), and can keep
    control of the money until the child is 21 (later with various
    legalisms...), but I don't know what the funders think of trusts.
    Alas, trusts cost money to set up (about $500), and you have to
    find a trustee (more money if you can't get a friend or relative).
    And you lose detailed control, though you get to specify what
    categories trust assets can be spent on.
    
    If you only have a little money--less than 5K, say--give it to
    the child for mad money and forget it.  If you have more, or plan
    to give significant amounts over time, set up a "College Fund" in
    your name and don't raid it!  If you have a big chunk, or a relative
    who wants to give the kid money for college, set up a trust.
    
    		-John Bishop

    
    	Re: .8
    
    	The IRS has closed enough of the loopholes that putting a lot of
    money into the kid's SSN just isn't the big win that it used to be.  I
    think the first $500 of the child's income isn't taxed, but beyond that
    it is taxed at your tax rate.  (Note, that last sentence is an "I
    think", not an "I absolutely know"...)  With this, the benefits of
    putting lots of money in the child's SSN just isn't there.  Besides
    that point, there are two reasons why I wouldn't put the money into the
    child's name/SSN:
    
    	1) As mentioned a reply or two ago, the college funding assistance
    formulas treat your money differently than how they treat your child's
    money.  You are considered to have other pressing needs beyond paying
    for college - ie. retirement, mortgage, etc., etc. - while the spending
    priorities that they put on your child's money are much more heavily
    weighed towards paying for college.  I forget the exact numbers (mostly
    because I know they will change before my kids go to college), but lets
    pretend that 20% of your assets are tagged for college payments but
    75% of your child's are.  For every $10,000 you have set aside in your
    name, the funding formulas would figure that you could pay $2,000 for
    college.  If that $10,000 is in your child's name, it figures that
    $7,500 is available for college bills.  Big difference when it hits the
    bottom line of determining how much assistance (loans, work study,
    grants, etc.) to give your child.
    
    	2) I hate to sound mistrusting of our children (and, incidently,
    at 4 and 2 1/2 they are way too young for me to have an opinion on what
    they will do in life or how they will view college), but I have trouble
    setting up the college finances in a way that gives them a huge check
    when they turn 18.  If you put it into their name/SSN and they hit 18,
    IT IS THEIR MONEY to do with as they wish.  Frankly, what I don't want
    to do is have my kids turn 18 and face the serious question as to whether
    to spend the money on college or spend the money on something else.  If
    the money is in our names, then hopefully we are increasing the chances
    of them going to college by removing the one-time financial carrot of 
    them _not_ going to college to get the big check.
    
    	In my view, then, even if there are federal tax benefits in putting
    the money into my childrens' name/SSN, I think there are other, more
    pressing, reasons not to do this.  Life is too complex to be solved
    by just minimizing federal income taxes.
    
    							-craig

    My wife and I set up educational trusts for the children, and I have
    never regretted that decision.
    
    The terms of the trust specified what were legitimate college
    expenditures, it prioritized the expenditures in case there wasn't
    enough money to pay for everything over four years, and it specified
    what would happen to the accumulated funds if the child could not get
    into college or if there was money left over after college graduation.
    
    A local lawyer agreed to handle the administration: tax returns, bill
    paying, and the like.
    
    What turned out to be an unanticipated benfit was when the kids
    "demanded" money for a Mac or for an extra airline trip home,
    the "mean" parents weren't the ones to say NO, the attorney was the bad
    guy.
    
    We all hope we will be mature enough not to touch our children's
    college money, and we all expect our children at age 17 or 18 to
    fulfill our parental wishes instead of their own fantasies; but 
    $100K is one big temptation.

    One other unmentioned benefit of putting the money in an UGMA is that
    some companies (Fidelity, e.g.) have reduced or waived minimums as well
    as waived loads for their funds.

    L.

    This advice makes a lot of sense to me.  Unfortunately, I already have
    a lot of $$ tied up in UGMA's for my two kids.  When I started the
    practice with not much money, I didn't give it much thought.  Over the
    years I just continued.

    Now I sort of regret the strategy.

    What are the exact legal requirements when the child reaches 18 ?  Must
    full control of the funds be handed over at that time ?  Is it illegal
    to not tell the child about them, and to distribute the proceeds in
    pieces ?

    Is there any way to legally "take the finds back", settle back taxes,
    etc ?

    L.

    re: .14
    
    I am not sure what the real answer to your question is. (If someone
    knows for sure, I'd be interested in finding out, too.) But, I remember 
    I read it somewhere that if you take the money back, all the gains will
    be taxed to you, and that's all. I am skeptical about it being just
    that simple. I talked to a co-worker who also works p/t in H&R Blocks. 
    She told me that if the total amount is less tan $5k, you can just take
    it out no problem. Now, how accurate this answer is? I have no
    verification of it. 
    
    But, you are the custodian on the account, right? You can take the
    money out and use it on your children as long as it's for "education
    purposes". So, the next time you send your kids to a private school or
    a piano lesson, just take the money out of this account instead of your
    own pocket and stop putting more money into this account. Most likely,
    you'll use up the money before your kids hit the age of 18. I don't
    know if "childcare" can be considered "education purpose"? Does anybody
    know? 
              
    Mike

In Massachusetts, the law requires the custodian to transfer control of all
UGMA funds to the child when he reaches the age of 18. 

In addition, as soon as the child reaches the age of 14, the custodian must 
provide an annual accounting to the child.  Before that age, the custodian 
must provide such an accounting to the child's parents.

Yes, the custodian may pay out funds for the benefit of the child before age 
18; but these may not be for normal parental expenditures; e.g., clothes, 
lunch money.  Piano lessons are not considered "normal".

Furthermore, the custodian may pay out funds to himself for managing the 
investments.  If he does, then he is open to legal assault for fiduciary mis-
management; if he does not charge for his advice, then he may not be held 
liable.

I strongly advise anyone trying to "play games" here to read the law 
beforehand.  It's not only the IRS you may run afoul of, but also the good 
will of your child.

If I remember to find my copy of the statue when I get home, I'll provide a 
reference in a subsequent reply to this note.  The law is written in 
reasonably clear English.

    Just moved my daughter's Uniformed Gifts account (Mass) from one bank
    to another. I was asked to initial a statement that said that the
    age of majority is 21 (not 18) as of 1 JUL 87. I believe that this
    means that a child does not have control of the money until he/she
    reaches the age of 21.
    
    Ray

    The Uniform Gifts to Minors Act is Chapter 201A.  You can read it in
    its entirety in your library.  Look for the book, "Annotated Laws of
    Massachusetts".
    
    Re .17, I believe the age of maturity was reduced to 18 in 1987 or
    1988.  Your bank must have an _old_ form.

    Too bad.  21 is much more realistic IMO.  Does anyone know for certain?
    
    L.

    In New Hampshire it's age 21, I'm pretty sure. My daughter's UTMA
    account statement is sent to me as: 
        "Barbara Corman 
         Custodian for [my daughter's name] UTMA/until age 21"
    
    -barbara 
    
    P.S. I have a vision of my 3 year old daughter suddenly grown up
     and grabbing the UTMA statement out of my hand, yelling "AHAH! Hand it
     over!" Right now she's contented to rip the used postage stamps off
     the envelope, thinking that's where the wealth lies. That won't
     last long, no doubt.

    Hi again,
    
    I've just gone through a period of doing research to understand
    the difference between a trust and an UTMA account. I've discovered
    a few facts that I misunderstood and thought I'd share them here:
    
    There are several types of trusts, but any type is treated
    as its own entity for tax purposes. That means that one must
    file a separate tax return for the trust. For example, I have
    a trust set up in my daughter's name: she's the "beneficiary"
    and I'm the "fiduciary" of the trust. As fiduciary, I'm legally
    obligated to keep accurate records of the trust's income and
    file a federal tax return annually to report (and pay taxes
    on) the income.
    
    The nice part: the trust's income is taxed at 15% for the first
    $3600. Compare that to an UTMA acct, which is taxed as follows:
       -First $600 of income is tax free,
       -The next $600 is taxed at 15%,
       -All other income beyond that $1200 is taxed at the gaurdian's
        rate (that is, my rate.)
    
    This difference isn't too significant when you're talking about
    $15K or $20K (although the trust still comes out ahead by a few
    hundred dollars) but after that the tax savings is substancial.
    
    The last piece of info. I can share right now --
    In my confusion about trusts, I placed some trust funds inside
    of my daughter's UTMA account, thinking that the UTMA account
    is a sort of umbrella under which all her money could go. Tax
    implications aside, this is not the way to go. Both the trust
    and the UTMA are legal "umbrellas", but the benefits of the trust
    outweigh the UTMA (for one thing, the trust is written so that
    she doesn't get the money until she's 25.) By placing the
    funds inside the UTMA, the UTMA overrides the stipulations of the 
    trust.
    
    If you have a trust document drawn up, you can then open an
    account (for example, an account at a brokerage firm) in the name
    of the trust, and can trade stocks or invest it how you see fit.
    
    HOWEVER... the money that goes in to the trust, *just as with an
    UTMA account*, is legally the beneficiary's. If you spend it,
    you legally must have proof that you spent it for the long-term
    welfare of the beneficiary. It's not just a tax question but
    a legal issue -- in either a trust or UTMA, the money is owned
    by the beneficiary. Taking it out and spending on yourself is
    akin to stealing it, legally.
    
         -Barbara C.

    > $3600. Compare that to an UTMA acct, which is taxed as follows:
    >    -First $600 of income is tax free,
    >    -The next $600 is taxed at 15%,
    >    -All other income beyond that $1200 is taxed at the gaurdian's
    >     rate (that is, my rate.)
    >
    
    Income beyond the first $1200 is taxed at the parent's rate only if the
    minor is under the age of 14.
    
    L.
    

    Sale date of the 93 State of New Hampshjire College Savings Bond
    Program is May 3-10.  I've sent away for the Brochure.  Does anyone
    know anything about this?  Comments?
    
    Thanks,
    Julie
    

    Does anyone know of a publication that lists ALL college scholarships?
    My kids are still a ways from college but I'd like to stay ahead of the
    game.
    
    Ken

    
    
    After reading this (and several other) note about UGMAs and UTMAs and
    some of their drawbacks, it leaves me wondering something else: what
    are the rules surrounding the reporting of interest on accounts held
    jointly by an adult and a minor? Suppose I set up a joint account 
    with me and my 2 year old daughter... can the interest be reported
    under my daughters name? Believe me when I say that the money really
    will by for my daughter's college... or for a down payment on a house
    for her... or car... or whatever. Setting any impropriety aside, 
    what does the IRS say about this?
    
    
    
    doug
    

Whoever's social security number is on the account is the one who reports it
to the IRS.  So if you use your SSN, then the interest gets reported on your
1040.  If you use the minor's SSN, then the interest gets reported on the
minor's 1040.

    Ref .26
    
    To elaborate on .26, if account is with Minor's SSN, and if child is
    age 14 or less, then interest is taxed at Adults' ordinary income tax
    rate.  Not really a tax saving strategy.
    
    Dan,
    

    
    re: last
    
    Dan, should the interest on my daughter's savings account be 
    reported on my 1040 at the end of the year? Or, will I need to 
    fill out a 1040 for her at the end of the year?  Currently, it 
    amounts to about $25 yearly. Finally, can I gather from all of this
    that the only way to save money for her on a tax free basis (at 
    least for the initial $400 of interest) is in a UGMA or UTMA account?
    
    Hopefully (if I plan correctly) her college fund will be tens of 
    thousands of $$$. Losing a hundred or two per year is far less 
    expensive than losing the whole amount in an 18 year old's fit
    of independance. Plus, it appears likely that any savings in 
    interest would be wiped out by the additional financial burden that
    colleges will place on her due to financial assets in her own name.
    
    
    doug
     
    

                   From the Sunday Boston Globe: Jan 29, 1995
                     College-savings plan to begin this week

  Several area lawmakers want to spread the word about U. Plan, a
  state-sponsored [Massachusetts] program that allows parents to lock in
  current prices for future tuition at participating private and public
  colleges in Massachusetts.  Under the program, families can make either a
  lump sum payment, with a minimum of $300 a year, or a monthly payment of 
  at least $25. 

  The enrollment period begins Wednesday [Feb 1, 1995] and ends March 31.
  Call the Massachusetts Educational Financing Authority at 1-800-449-6332. 

  Note: I called this morning to request a brochure which will explain the 
        program.  (Be aware that you will be requested to supply your day 
        and evening phone number and your social security number.  I politely 
        refused wnen I was requested for my social security number.)  The 
        brochure should be sent with 3 to 5 days.

My wife and I met with a gentleman this evening. He represents
"College First", affiliated with Mid-West National Life Insurance Co.
of Tennessee.

His pitch is (in the case of my 14-year-old son), we pay approx.
$60/month, which builds cash value and pays for some term insurance
for my son, and in return College First will guarantee to loan my son
up to $30,000 (4, 5, 7, 7, and 7k) to be repaid starting six months
after graduation at Prime+2% simple interest - up to 15 years to
repay.

I haven't run the numbers yet and was wondering if anyone had heard of
this plan?

Thanks,
Pete

    to -1
    
    Run, do not walk, to the nearest exit.
    
    If you want a savings plan for your son, start it.
    
    If you want insurance for your son, buy some simple term. Cheap.
    
    Paying $720 per year, getting a cash value which will undoubtedly be
    less than a corresponding amount put into savings, and getting the
    PRIVILEGE of a not-so-attractive loan is not my idea of a good deal.

    I agree with .31   This again proves what PT Barnum said.
    
    As to specifics, I can get $200K term life for about $720. Your
    son should be able to get it at a fraction.  As for the guaranteed loan,
    any bank where you save will give you their most favorable rate.
    
    As for education loans, students can get them for LESS than prime.
    
    I'd ask him what he's smoking.

In one word:

	Shaft!

like the guy before me said, RUN FOR THE DOORS!
tell that guy he's a ripoff.

    However the money the salesperson will make from you will help send his
    children to college...;-)

I suspected as much, which is why I asked in here.

He did represent that most people can't qualify for what I remember as
NDSL loans (you know, cheap rate, pay back when you graduate -- I and
everyone I know my age went that route big-time), so what might be
some examples of "As for education loans, students can get them for
LESS than prime"?

I think that between scholarships, mutual funds, and loans, we can do
it.

Thanks for the prompt feedback,
Pete

    What is the logic for buying insurance for someone who doesn't even
    have an income? The reason you want to buy insurance is that in case of
    that person's demise, you want that person's family and loved ones
    taken care of. Your son does not have an income (I assume) and you
    family is not depended on his income. God forbid if something happens
    to him, the last thing on your mind is to get paid by the insurance
    company. This buying insurance from kids thing just doesn't make any
    sense to me.
    
    Mike

    re .36
    I was wondering why life insurance in any big amount was needed here,
    too.  I know that when my brother and I were growing up, my parents had
    small term policies on both of us, just enough money to pay for a
    funeral.  College money is better invested elsewhere, I think.
    
    /Charlotte

re life insurance

There are many alternative ways of financing education. With two of those
methods, you probably should take out an insurance policy on the student; those 
instance where the student has loans YOU have to co-sign, those instances where 
YOU pay the tuition with a promise of repayment. In any case, you would need 
only sufficient insurance to cover the amount owed.  Decreasing term for the 
duration of the payback period would make most sense and it is usually very
inexpensive insurance.

Dave