moving UGMA funds
researcher
stockbrokers) and purchased stock for my grandson that is now valued
at $1500. I want to transfer these shares to an educational trust.
The trust will sell the shares and invest in mutual funds. Will the
movement from the UGMA to the educational savings trust create a
taxable event? Will the sale of the ($1500) shares by the trust
create a taxable event?
For everyones information the Vanguard Education Account allows you to
self direct the funds, maximum contribution $2000 annually.
Paul Thomas, CPA
"researcher" <malib...@verizon.net> wrote
>I placed $1000 in a UGMA Custodial Account for Minors (at a
> stockbrokers) and purchased stock for my grandson that is now valued
> at $1500. I want to transfer these shares to an educational trust.
> The trust will sell the shares and invest in mutual funds. Will the
> movement from the UGMA to the educational savings trust create a
> taxable event?
Yes. Whether or not tax is owed, there is a reportable gain on the sale by
the UGMA.
> Will the sale of the ($1500) shares by the trust
> create a taxable event?
--
Paul A. Thomas, CPA
Athens, Georgia
Ira Smilovitz
"researcher" <malib...@verizon.net> wrote in message
news:1182915265....@d30g2000prg.googlegroups.com...
You have a problem here. You cannot transfer the UGMA funds into an
educational trust. The UGMA funds are the property of your grandson, you are
only the custodian of those funds. The educational trust will be the
property of whomever establishes the trust, even if your grandson is the
beneficiary. Since your grandson isn't establishing the trust, you can't
move his assets into it.
Ira Smilovitz
researcher
> "researcher" <malibu....@verizon.net> wrote in message
As custodian I currently buy and sell stocks in his UGMA fund and
report the income under my grandson's ss #, so why can't I sell some
stock and place the cash in the Vanguard Education Account and direct
Vanguard to buy stocks of my choice. I realize it is only $2000
annually but any trading profits would now be tax deferred.
researcher
I would open the Vanguard account in my grandson's name just like I
did the UGMA account.
Ira Smilovitz
An UGMA account has a custodian and an owner. An education account has an
owner and a beneficiary. The custodian and/or beneficiary can be changed,
but the owner of the assets can't. Your grandson can't own an education
account because he's too young. If you transfer his assets from the UGMA
account to an education account where he's the beneficiary, you will have
converted his assets to your own. That's illegal.
Ira Smilovitz
Ira Smilovitz
smit...@aol.com
Not true. The beneficiary CAN make contributions to his/her own ESA,
as this passage from Pub 970 makes clear.
"Any individual (including the designated beneficiary) can contribute
to a Coverdell ESA if the individual's modified adjusted gross income
(MAGI) (defined later under Contribution Limits) for the year is less
than $110,000."
If funds from the beneficiaries UGMA or UTMA account are transferred
into the Coverdell ESA, ownership of the funds transfers as well. This
means that the "responsible person" (not owner or custodian) no longer
has the power to change the ESA beneficiary.
?If you transfer his assets from the UGMA
> account to an education account where he's the beneficiary, you will have
> converted his assets to your own. That's illegal.
And, it says that where?
Ira Smilovitz
news:1183270643.3...@z28g2000prd.googlegroups.com...
The point you're missing isn't part of the tax code -- namely, a minor can't
open a Coverdell ESA because a minor can't open an investment account. Once
your grandson reaches the age of majority in his state (and you cease to be
the custodian of his UGMA account, HE can open a Coverdell ESA and transfer
his funds to it. But, for now, you would have to open the Coverdell ESA as
the owner.
> If funds from the beneficiaries UGMA or UTMA account are transferred
> into the Coverdell ESA, ownership of the funds transfers as well. This
> means that the "responsible person" (not owner or custodian) no longer
> has the power to change the ESA beneficiary.
>
>
> ?If you transfer his assets from the UGMA
>> account to an education account where he's the beneficiary, you will have
>> converted his assets to your own. That's illegal.
>
> And, it says that where?
Again, this is not part of the tax code, but the general legal code.
Tranferring a minor's assets which are under your care as custodian to your
own ownership is a form of theft.
Ira Smilovitz
Paul Thomas
"Ira Smilovitz" <ir...@aol.com> wrote
> <smit...@aol.com> wrote
>> If funds from the beneficiaries UGMA or UTMA account are transferred
>> into the Coverdell ESA, ownership of the funds transfers as well. This
>> means that the "responsible person" (not owner or custodian) no longer
>> has the power to change the ESA beneficiary.
>>
>>
>> ?If you transfer his assets from the UGMA
>>> account to an education account where he's the beneficiary, you will
>>> have
>>> converted his assets to your own. That's illegal.
>>
>> And, it says that where?
>
> Again, this is not part of the tax code, but the general legal code.
> Tranferring a minor's assets which are under your care as custodian to
> your own ownership is a form of theft.
There is a change of ownership of those funds, and the child, or another
adult family member may have issues with that move, now or in the future.
As an aside, this type of game playing probably happens often without much
fanfare. But if or when someone who is close to you now gets ugly about
things in the future, this can rear it's ugly head as a full grown problem
that's difficult to explain to the courts.