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Author: nacohn One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 6743  
Subject: Re: transfer ownership at 18 of mutual funds Date: 1/20/2000 8:45 AM
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Your son can gift the funds to his parents (you) but only $10,000 per parent. Anything you receive over 10,000 is taxable.
When your son gives up the $10,000, I think he is liable for taxes on his end. Just because he doesn't sell them doesn't mean he's able to avoid taxes.


As long as he gifts the FUND SHARES to you, and not the proceeds, he should not be taxed on the share gift, because he did not realize the gains. Of course, you do have to watch out for the 10,000 limit. One thing you could do, is do the gift to each parent, both this year and beginning of next year. Then, reapply for financial aid next year (I am pretty sure you can do that).

Another thing to consider... You know those shares are going to be sold soon, regardless of which of you sells them. You may wish to consider having him sell them, because of the presumably lower tax rate, then gifting the CASH to the parents. The advantage of this, is that the assets will still be transferred out of his name for financial aid consideration, but the tax that needs to be paid on thim will probably be lower than if you sold them. To see if this makes sense, you should calculate his marginal tax bracket, if it is less than 20% (the max rate for long term cap gains), then it may be worth a closer look. In that case, he would be liable for the taxes on the sale (but of course you could pay the taxes for him out of the proceeds if he had already gifted the proceeds to you before tax time).

** One thing I am not sure about - at what point in time are his assets analyzed for financial aid? You should verify whether they look at his asset history or just the current value of assets at time of application.

The larger one he was planning on taking out 20,000 to cover the first year tuition, and transferring ownership of the balance to us; and then each year we would take out from there for his tuition. We were told by our accountant that's the only way to avoid the sale of the stocks.
Hmm, short time horizon ... planned selling of stocks in the future. Why would you want to avoid selling the stocks? sounds like you should find a good time to cash out and get a CD (minimal risk for known planned short term expenses). Sounds like another reason for having him sell the stocks and transfer it to you as cash (if his taxes would be lower)...
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