Dividing college funds among siblings

audiophile · 03-09-2008, 05:17 PM

Haven't seen today's NYT column by The Ethicist discussed yet:

Quote:

I began saving for my two sons’ college education 18 years ago through U.G.M.A. accounts, whose funds revert to the beneficiary at 21. My older son attends a state school and could have $100,000 remaining when he graduates. My younger son will likely go to a private school and perhaps grad school and could deplete his account. May I ask my older son to share his remaining money with his brother?

StickerShock · 03-09-2008, 05:24 PM

Interesting. As the choice of college is just that -- a choice -- I'd split the $$ equally between the two. It's not as if one boy has serious medical concerns, and will need more financial resources devoted to him than his sibling will require.

owlice · 03-09-2008, 05:26 PM

The money is legally the older son's, so what a parent might want to do with it is irrelevant, which is why the parent has to ask the older son to share. The parent cannot make the older son do so.

mominva · 03-09-2008, 05:34 PM

Legally, if the older son is not yet 21, now is the time to deplete that UGMA account. And do the same for the younger boy, too. You can pay yourself back for any expenses specifically for the benefit of the child (music lessons, new baseball cleats, private school tuition, etc.). Once the money is back in your hands you can control its distribution.

If the older boy has reached age 21, it is legally his money.

Ethically, I would find it hard to keep any of the children's money which they contributed to the UGMA account eg. earnings or gifts.

Marian · 03-09-2008, 05:36 PM

This story illustrates why a UGMA account may not always be the best idea.

Lafalum84 · 03-09-2008, 07:31 PM

Amen, Marian. If the money were in a 529 plan it could be moved between kids, but in a UGMA the money legally belongs to the child. Also, if a child is a candidate for financial aid (doesn't sound like anyone with $100k of extra money laying around would be) funds in the child's name count much more heavily than funds in the parents' names.

Mominva, the kid doesn't have to be 21. It is legally HIS money from the second it goes into the account. He just doesn't have control over it yet. If the parent spends it they must show that it was spent for the child's benefit. Once the kid reaches legal age (and the age varies between states, it's not always 21) the kid controls the money and the parent can't do a thing about it.

I used to work for a mutual fund company. Every year we would have people send us instructions to transfer money out of their kids' UGMA to fund the parent's IRA, and we would have to reject the instructions. I had people say to me on the phone, "But it's not really my kids' money. We just put it there to avoid taxes!" We also had teens that called pretending to be their parent, trying to liquidate funds out of a UGMA to buy a car or whatever. They'd get their friend with a deep voice to call and pretend to be the dad. It was usually pretty easy to sniff them out, and pretty funny.

Lafalum84 · 03-09-2008, 07:37 PM

But re-reading the OP's posting, the larger question was if the parent could ask the older child to spend his leftover money on his younger sibling. I don't see why they couldn't ask the older one to do that. I guess the question was more toward if parents should spend the same amount on each child?

audiophile · 03-09-2008, 07:41 PM

Here's the link to the full column:

That'll teach you to be a responsible parent!

Muffy333 · 03-09-2008, 07:46 PM

The ethicist says yes, you can ethically ask.

My ethics are that I wouldn't ask and allow the older one to keep his savings without guilt and have a discussion with the younger one about going to a more expensive private or less expensive public. I liked how in Its a Wonderful Life George Bailey stays at home in Bedford Falls so his younger brother can go off to college and have an exciting life...but George got that idea himself, not his mom.

I can't imagine there wouldn't be major tension in the household after the parent asks S1 to give S2 $100,000 so S2 can go to a fancy-schmansy school...

rocketman08 · 03-09-2008, 07:58 PM

Legally, Lafalum84 is correct in saying that the money belongs to the child and can't be withdrawn without their permission (although until they're 21 the child can't withdraw the money without the parent's, or account guardian's, permission).

Ethically, I agree with the column in saying that you can ask that the money be used for this purpose. I suppose it really depends on what you intended for that money to be used for in the first place. I'm guessing that the intent was to ensure that you're children could get a good education without having to go into debt... not that you give them a lump of money just as they start their careers (a nice boost but more of a bonus than a necessary expense). In that case then it would certainly be unfortunate if one child got a lump sum of 'free' money whilst the other had to go into debt for their education.

I suppose it depends on how well you get along with your kids and what their attitudes are towards money (especially inherited money). Ethically I think the money should first be used to pay off educational expenses and then the rest divided evenly between them... however because of the unfortunate legal arrangements of how the funds were set up in the first place that means this can only happen via the good will of the beneficiary and not the person who put the money there.

garland · 03-09-2008, 08:07 PM

I tend to agree with Muffy--because the older one made frugal choices, he should fund the younger? Doesn't seem fair to even ask, to me. Did he pick the state school with the assumption that the funds would then be available for other use? Do we know that he won't want to further his education later on in ways that the money left might make possible? Absent more specific facts, the situation seems to suggest a favoring attitude toward the younger son (and let's look at the numbers; if the older one will have 100K available after his education, and if the younger is equally funded, then there would seem to be adequate funds available, or close to it without even going into present income. So, we seem to be talking about paying for the youngin's grad, not undergrad, school--making a lot of assumptions about what the older one might want to do, despite "only" having gone to a state school.)

coronax2 · 03-09-2008, 08:23 PM

I would also say no to asking the older brother to use the left over funds in his account to pay for his younger brother's education. For the same reasons others have already stated, I think it's a bad idea.

Granny · 03-09-2008, 08:25 PM

We have funded the grandchildren's funds equally and made it clear that the leftovers are intended for grad school and for their children. Of course, they themselves can figure out that they can transfer funds among themselves when we are gone.

emeraldkity4 · 03-09-2008, 08:42 PM

I can't imagine there wouldn't be major tension in the household after the parent asks S1 to give S2 $100,000 so S2 can go to a fancy-schmansy school...

Perhaps that is why older child was frugal in his choice- so that the money would be available after college- for grad school etc.

anxiousmom · 03-09-2008, 08:49 PM

Agree with coronax2. They each have accounts - the accounts are theirs. It would be horrible if the older was asked to give his money to the younger and it ended up causing family rifts...