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Grandparent Education Stock Gift
Old 08-01-2013, 12:26 AM   #1
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Grandparent Education Stock Gift

Love to get all your thoughts on my familial situation here. My mother who is a wonderful woman and very generous has decided to give money to support my son’s future college education (he was just born). However, she is somewhat stubborn and wants it to be done her way despite the fact that there are far more financially savvy ways for her to give money. She has decided to choose several high dividend paying stocks (she is a big believer in high dividend paying stocks and dividend reinvestment), set up a DRIP account for them, and periodically place money in those accounts (I estimate it will be between $1k-$2k/year). I have to setup the accounts, either in my name or my son’s name (but not hers). I’ve already talked about how it would be much better for her to just contribute to a 529 plan or better yet hold onto the money and give it when my son actually goes to College (although to be honest she may not be alive to see it) but this is the way she wants to do it, and I’m not going to argue too much when she is being so generous.

This leads me to the decision of whether I should put these DRIP accounts in my name or a custodial account in my son’s name. The following are benefits/drawbacks that I have thought about:

1. Putting it in my son’s name would probably be more advantageous from a tax perspective on these DRIPS because of his lower tax bracket (once dividends are high enough to hit the unearned income threshold for dependent tax filings).
2. Putting it in my name would be beneficial from a College financial aid perspective as the FAFSA financial aid form significantly hurts a students financial aid the more money that is in the student’s name. Assets in the parent’s name is fairly minimal in determining the family contribution (I think). I'm in an industry where my income potential is not too high so this could be a big benefit for me later on.
3. College’s are widely known to not be exactly need blind though so maybe it would not be so bad to not “hide” assets if it at all helps in the College admission process.
4. I hope not to raise a son who would use these assets unwisely, but my understanding of the custodial account is that my son could do what he wanted with the money after he turned 18 so it might make sense for me to put it in my name so I could simply maintain control.

Now that I lay this out, it leads me to think I should just put the DRIP accounts in my name, but please let me know your thoughts on the situation or if I'm missing something.
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Old 08-01-2013, 09:20 AM   #2
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Originally Posted by Good_Life View Post
........... However, she is somewhat stubborn and wants it to be done her way despite the fact that there are far more financially savvy ways for her to give money. ................. Iíve already talked about how it would be much better for her to just contribute to a 529 plan or better yet hold onto the money and give it when my son actually goes to College (although to be honest she may not be alive to see it) but this is the way she wants to do it, and Iím not going to argue too much when she is being so generous.
Yes.......don't bite the gift horse........ I learned in a literacy class that people have different ways of learning. Some like to hear it ("I've already talked..."), some like to see it, some like to read it......... perhaps give her some 529 info to read (Savingforcollege.com); perhaps do a mathematical model comparing the DRIP and the 529, graph the results etc. Perhaps you can persuade her but , if not, be a gracious "loser".
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Old 08-01-2013, 10:34 AM   #3
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I feel very lucky that my father started/funded both my son's 529's with a few thousand at their birth. When he passed, I inherited them (with the boys as beneficiaries) - and have continued to fund them (at a higher level than he did). Grandparent provided college fund boosts are awesome.
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