Money from Grandma?

vballmom
Mon, 10 May 2010 23:03:54 +0000

Well, if the money is in a UTMA under your son’s SSN, it’s already been “given” to the grandson over the years. He’s the one who will have to pay the capital gains tax (if any) when the account is liquidated, and presumably he declared this as an asset on his FAFSA. The grandmother, as custodian, can arrange to have the funds transferred directly to the college, or have the funds withdrawn and a check made out to your son (even if he’s a minor in your state). Your son can then write a check to his college to pay tuition/fees/whatever. The duties of the custodian are to ensure that the money is spent for the benefit of the beneficiary. For UTMA funds, unlike 529s, this money doesn’t have to go directly to pay a qualified higher education expense.

If his grandparent wants to gift him money, it would have been advisable for her to have set up a 529 for your son rather than a UTMA, but that’s probably water under the bridge.

At any rate, if you have a choice of which funds to spend first, spend down the UTMA, then the 529, all other things being equal.