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Read the Article or pull §529 of IRC

>>ii) deemed to be a present interest gift, so there is no gift tax;

>>This is true but only up to $10,000 per individual and $20,000.00 per married couple same as annual exclusion limits for outright gifts or any other form of transfer.<<

Your Statement is true, but not applicable, with regard to State Plans. Read the Forbes article or the §529. It provides for a five year carryforward in order to use up the annual exemption. Also, why not use up the Unified Credit as well!

Interestingly, extending the custodianship beyong the donee's age 21 (some states permit) will disqualify the gift for the annual exclusion!!!2503(c)!!!!!

>(iii) earnings taxed when removed from the account;

>>This is true, but depending on the investment this may be a red herring. If you invest in stock that appreciates but pays little or no dividend and you do not actively churn the account then this feature doesn't help as far as I can see.<<

Income from any custodial property will be taxed to the minor whether distributed or not. Have you looked at the compressed tax rate structure on Trusts lately?

The value of property trsnferred will generally be included in the estate of a deceased monor-donee, upon his death.

Custodial property will generally be included in the estate of the donor if the donor appoints himself or herself as custodian and dies while serving in that capacity. Rev rul 59-357

Of course, you have to have a decent manager!! The portfolio investment by the funds varies from state to state, but of course they use income producing funds and interest paying bonds!! They invest to pay tuition!! While your at it, check the management fees!

>>(iv) funds can be returned to the Grantor if not used, but generally have to be kept on account for 5 years; <<

>>Are you sure about this? This would tend to eliminate the present status of the gift. Typically any type of transfer that has a possibility of reverting to the transferor is not viewed by the IRS as being a completed gift for purposes of the annual exclusion.<<

Yes. Read the Code and the Article. in Forbes

Good Luck

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