Dividing college funds among siblings

[mominva]

I think the intent of the account originator needs to be considered.
I know my in-laws wanted the $ to help fund college, not a vehicle or vacation, but they put gifts in the kids' names to avoid the taxes. The were not aware that the kids could access this money before they finished school. Nor did they realize the implications that money could have on financial aid.
We were advised to stop saving in the kids' names and to spend that money on them. The money we spent (for their camps, select travel sports, personal laptops, etc.) came from their accounts and was immediately reinvested in a 'family' account which we use for their education.

[kelseyg]

My POV as a student:
I made a decision to go to a state school so that I'd have my parent's college savings left over for grad school or anything else. If my younger sibling decided to go to an expensive school *and* grad school, regardless of how well we could afford it, I'd be a little sore if my parents asked me to use the money they had set aside for me to fund my sibling's perhaps unthinking decision. But I would still give the money - it's family, after all. It would probably still cause some bitterness.

Anyway, that's assuming a lot about the vague situation proposed. But I think switching the money may be punishing the older child's responsible behavior and rewarding the younger child's irresponsible behavior.

[Student615]

But I think switching the money may be punishing the older child's responsible behavior and rewarding the younger child's irresponsible behavior.

There are two many unknowns to characterize the kids' behavior this way. I agree with the article. If each child was told "This is an account in your name, and the money is yours to do with as you please," then requesting a transfer of funds seems quite inappropriate. Sort of a "make your bed and lie in it" situation. But if this money was set aside specifically for the kids' educations, and just happened to be divided up into two of this type of account (because it was convenient, not because each child was absolutely entitled to half of the funds), and each child was told "We've saved for your education, and we have the ability to pay for whatever school(s) you choose," then a transfer of funds seems fair.

The kids could have had identical reasons for choosing the different paths that they did. Frugality may not have been any concern of the older child's. We don't know those reasons, we don't know what kind of parental support they had in their decisions, we don't know exactly what intentions the parents had for these accounts, we don't know what the kids have been told about available funds. I hope that the parents had the foresight to realize that something like this might happen, and to explain the $$$ and the accounts in appropriate terms. I also hope they have a plan in case their older child unexpectedly decides to attend grad school in the relatively near future.

[originaloog]

Having one child, we did not have this situation. However we did set up a UGMA for tuition and our ds will be graduating in May with about $45k remaining which could come in handy for grad school.

If a family were in the situation of the family cited in the NYT article, the question I would have to ask is why each child is making the choice of what college to attend. If the child attending a public college made this choice to have money for grad school or begin adult life with a nest egg to invest, I would have a real problem asking him to fork the remainder over.

In any case, I would insist that child 2 be fully responsible for his tuition, fees, books and spending money. There is more than enough to fill in the gap between this and savings through merit aid, student loans and work(summer + school year). I know because we did it. The parents should be in a position to fund the room/board expenses since not one, but 2 children are living away from home. Until I, as a parent, was doing everything to assist child #2, asking anything of child #1 would be foolish imho.

[kelseyg]

I do agree with you, Student615, which is why I wrote at the end "that's assuming a lot about the vague situation proposed." You're right that we don't have nearly enough motivations to make an informed decision about this. I was simply responding to a hypothetical situation that seems like one many families I know have faced.

However, considering that they only have so much money, it seems strange that the younger child wants to go to an expensive private school *and* grad school, when it really isn't necessary to go to a prestigious undergrad when you plan to continue your education. Especially when it potentially will bring financial hardships on your family and siblings.

[Student615]

kelseyg: I know your post was based on certain assumptions...only quoted to bounce off of your point, not refute it

I just have to believe that if the younger child's motivations really are selfish or unreasonable (bear in mind that "expensive private" does not necessarily mean "prestigious"), then he would be made to change his plan or to take responsibility for it, and transferring funds would be a non-issue. But no matter how I fill in all the unknowns, I struggle to get this situation so ethically muddled as to warrant a letter to the NYTimes. It's only the unknowns that are keeping it interesting. Perhaps it just boils down to the type of accounts + the family's dynamics, or maybe I'm seeing it as more black and white than it should be. Regardless, it IS a good situation to ponder, I just find it way too vague to really judge.

[dntw8up]

"May I ask my older son to share his remaining money with his brother?"

Sure -- it's ethical to ask, and yes and no are equally ethical answers!

[atg4ever]

I am not truly confident on all the legal issues here, but if this were my case, I would have no problem asking #1 for a low interest loan. This way, the money remains his and he is making some return and knowing that he is helping out family. Not a gift, but an invertment. #1 also must realize that this money did not just appear out of the blue and, if I read correctly, did not earn that money all himself. Therefore, putting together a low interest loan package everyone wins to some extent.

[audiophile]

Let's muddy the waters further with a hypothetical: Older, slacker son went to state school and majored in "partying", younger child is a brilliant 2400/4.0 Intel finalist who wants to go to HYPS and do MD/PhD.

[mominva]

What is the age of older child? Reread post #4

[owlice]

I'd say it doesn't matter.

The money in the older son's account is his. Doesn't matter what kind of student he is.

[swimcatsmom]

We have 529 accounts for both kids. Both with the same amounts. We were paying out of pocket for our son (the older child) while he was in CC thinking to let the fund grow for when he moved to a 4 year school. He dropped out, went back and has dropped out again . Sad but not surprising as he has never enjoyed academics and has some learning disabilities that make school tough for him despite having a very high IQ. Our daughter (the younger child) has excellent scholarships plus some grants and a little bit in subsidized loans. Her 529 account is also currently untouched. But her plan is to go to medical school. If that happens we will transfer the 529 money into her name to help pay for it. (though if our son goes back to school or a vocational type training, which I think would suit him, then we would use the money on him). If she does not go to med or grad school we will pay off her loans. If there is money left we will probably pay the penalties and keep it. We are retired and not amazingly well off.

We put the money aside for education. If it is not used for that we can definitely use it. They will get what is left eventually anyway.

The legalities are different with a UGMA account. The ethics are a little more blurry. Probably a lot depends on what the expectations were and how/if they were communicated to the kids. Ours do not regard the 529 account money as theirs to do with what they want. I am not sure they are even aware of them. And of course we are not talking about anything like those $ numbers in our case.

[citrusbelt]

Ethically, the money is the older kids and he shouldn't have to share. The problem arose because the money should never have been set up that way in the first place.

I was the beneficiary of an educational trust that was one large lump of money for three of us to only be used for education. When the youngest turned 28 years old, if any was left it was split equally three ways. I chose a state school. My brother chose a trade school. My sister chose both an expensive LAC and a private grad school. My sister sucked almost all the money out of that account, but neither my brother nor I felt entitled to it. We could have gone that route, too.