I have a question of gifting securities to a child.

I have a 5 month old daughter and have taken advantage of both a coverdell and a 529. My mother would like to gift a few securities of her choosing to her granddaughter via uniform gift to minors act (UGMA). I am told that while many colleges exclude or at least look favorably on coverdell and 529 plans, they will include any and all UGMA resources.

Is there a way for my mother to gift these securities to her granddaughter in a tax sheltered manner that won't spoil a possible financial aid bid?

Thx,
Craig

Zip Code: craig@levitas.com

Here's my understanding of the rules.

When calculating how much financial aid you'll be eligible for, the formula assumes that 35% of the money held in your child's name is available for college, while only 6% of the money held in your name is available. Since you continue to control the ESA and 529 money, those accounts are currently viewed as money in your name.

With respect to the securities, the first step is to determine what you plan to do with the money. It might make sense for you to transfer those securities into a new account that you set up in your name. You can sell those stocks as necessary to pay for college, and then can transfer up to $22k of value of the remaining shares to your daughter each year when she graduates.

If you don't think you'll be eligible for much financial aid, you might consider having your mother gift those shares directly to your child. The capital gains tax rate is generally more favorable for children over the age of 14 than for a working adults. Plus, any appreciation in the shares stays out of your estate.

It's great that you already started saving for your child's education. If you have follow up questions, feel free to post it on the message board or e-mail me directly.

Zip Code: susan@mdtaxes.com