Transferring Education Savings Accounts to a Trust with Kiss Trust

Posted by Ned Armand, President of Eastern Point Trust Company on May 10, 2017

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UGMA/UTMA accounts mature when the Beneficiary reaches the age of 18 or 21 (depending on the state). And that has many parents panicking because the beneficiaries of those accounts have open access to the funds once maturity occurs. This happens whether the donor desires this, or not. With a trust, you can restrict the use of assets better than any other financial tool available, simply allowing you (the Grantor) to stipulate the distribution terms.

Delay access and regain control of assets in an UGMA/UTMA account

A way to regain control of the assets in an UGMA/UTMA account is to create a trust to succeed the UTMA/UGMA account. Here’s how:

  1. Create a 3rd-party irrevocable trust with Kiss Trust (EPTC, the Trustee, will replace the UTMA/UGMA account custodian)
  2. Transfer the funds from the account into the trust
  3. Close the UGMA/UTMA account

Rules of UGMA & UTMA accounts

If you are considering opening an UGMA or UTMA account, or already have one open, it is important to understand the rules.

  1. Each UTMA/UGMA account has only one Beneficiary (a minor child) and one Custodian (usually a parent).
  2. The Custodian has “all rights, powers, duties and authority over such assets.”
  3. When the Beneficiary reaches the age of majority, the Beneficiary has full and unfettered access to the account.
  4. Asset in an UTMA/UGMA account is irrevocable, thus the Custodian cannot use UTMA/UGMA assets for the benefit of anyone other than the minor, or beneficiary of the account.
  5. The Custodian of an UTMA/UGMA account may use “so much of the custodial property as the custodian considers advisable for the use and benefit of the minor, without court order.” Thus, there is a clear basis for the Custodian’s discretion to use the assets for the minor’s direct or indirect benefit.

As noted, when the Beneficiary attains the age of majority or dies, the Custodian must transfer the assets to the Beneficiary or the Beneficiary’s estate. However, prior to the age of majority the Custodian has the right to transfer UTMA/UGMA account assets into a trust or another investment vehicle that benefits the Beneficiary.

We note that there are no known court precedents voiding the Custodian’s right to make such a preemptive transfer, as long as the new trust does not delay the availability of benefits until the death of the donors. Thus, if the Custodian has a “reasoned basis” for delaying the Beneficiary’s access to the assets, and there is no dilution of the custodial assets, then preemptive delay is appropriate. A “reasoned basis” can be as simple as the Custodian’s judgement that the Beneficiary will use the assets to his or her harm, or that the Beneficiary may waste the assets frivolously or imprudently.

The UTMA/UGMA account custodian is not subject to the usual fiduciary duties of a trustee—the Custodian’s only duty is that the property be used for the minor’s benefit. This “beneficial use standard” is satisfied if the Custodian transfers the property to a trust that benefits the same Beneficiary exclusively.

Converting a UTMA/UGMA into a Kiss Trust is a wise decision and will give you the peace of mind of knowing that the assets will be spent how and when you (the Grantor) wants, based on the distribution terms of the trust.

GO TO YOUR ACCOUNT TO BEGIN:

Go to Your Account

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Tags: Education Trust

How Parents Reduce The College Tuition & Income Gap Using Kiss Trust

Posted by Tyler Phelps, Vice President of Eastern Point Trust Company on Jun 14, 2016

school2.jpgTuition costs have risen at a yearly rate that is far greater than the growth of the median household income, and they show no signs of slowing down anytime soon. This is not good news for parents, and even worse news for their students. Families must find a way to plan for their high school graduate’s tuition expenses before it is too late. While that sounds like a dooming cliché, it’s true. More high school graduates are attending college than ever before, making it difficult for students to receive sufficient financial aid. Financial aid is awarded based heavily on student need. Without proper planning, parents can hurt their student’s chance of receiving grants, scholarship, and even student loans, which can be detrimental to their child’s college plans. If this seems exaggerated, just take a look at the statistics and visualizations below:

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Analysis

Between the years of 2004 and 2013 (a 10-year period), tuition costs increased by $809 per year, on average. Between the years of 2004 and 2013 (a 10-year period), the median annual income increased by $1027.89 per year, on average. Seeing that the average median annual income (over the same time period) is $32,712.30 greater than the average yearly tuition cost, the difference in the average increase in the average median annual income and the annual tuition cost (which is only $218.89), seems insignificant. That’s because it is.  In fact, over the 10-year period between 2003-2014, the average annual percentage change of tuition (5.08%) is 236% higher than the average annual percentage change of median income (2.15%)Tweet: The average annual percentage change of tuition is 236% higher than the average annual percentage change of media income #KissTrust. If all of these numbers confuse you, you’re probably not alone. There’s just one thing you should take away from this. It is becoming more imperative to plan for your student’s college career. 

 

How to Reduce This Gap

If you are like most, you have no clue where to start. Planning for your child’s expenses seems daunting and insurmountable. The good news? Just by being here, you are already taking a step in the right direction, and college planning may be easier than you might think. There are several education accounts that parents can utilize, but they are not all same. Each type of account comes with a unique set advantages and disadvantages. While each account is different, and whether or not you have started saving for college expenses or just looking for a better alternative to college savings accounts, there is an option for you. Click here to view several types of college savings tools available to parents. 

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Tags: Irrevocable Trust, College Savings, Education Trust

The Better Alternative to Coverdell ESA That You Didn’t Know Existed

Posted by Aimee O'Grady, Child Savings Specialist on Apr 27, 2016

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Explaining the Coverdell ESA

Formerly referred to as the Education IRA, the name was changed to the Coverdell Education Savings Account in 2002. A Coverdell ESA permits custodians to save money for qualified education expenses for a named beneficiary who is under the age of 18 when the account is established. In addition, the savings can be used for both higher education and certain K-12 expenses. The Coverdell ESA is a tax-free investment option that offers tax-free withdrawals when the funds are used for qualified expenses. It’s attractive for families with fewer dollars to invest, who meet the eligibility requirements and aim to use the funds for both elementary and secondary as well as higher education expenses.  

Coverdell Advantages

1)     No Relationship Required. A Coverdell ESA does not require that there be a relationship between the custodian and the beneficiary. Friends, family and even companies or other entities may establish an account and make contributions.

2)     Child Contributor. For families who earn more than the maximum income permitted, the beneficiary may make contributions to the account themselves with money gifted to them if they earn less than the maximum income allowed.

3)     Qualified Expenses. With the option to use the funds for qualified elementary and secondary school expenses, the Coverdell ESA offers expanded savings options when compared to other plans.

Coverdell Disadvantages

1)     Low Maximum Limit. With a $2,000 maximum contribution limit, the Coverdell ESA has a much lower limit than other savings plans per child.

2)     Eligibility Requirements. Families must have a modified annual adjusted gross income of under $220,000 annually, or $110,000 for a single parent. Contributions made by individuals whose income exceeds this level will be subject to penalties.

3)     Withdrawal Age. Funds must be fully withdrawn by the time the custodian turns 30, unless the individual has special needs. Certain transfers to family members are permitted.

4)     Not tax-deductible. Finally, contributions to a Coverdell ESA are not tax-deductible.

The Better Alternative You Didn’t Know Existed

The Coverdell ESA has aspects that are appealing to parents, but it comes with its own set of limitations and drawbacks. The alternative to Coverdell ESA pertinent to college and education savings is a trust. Kiss Trust is the only provider of small trusts, family trusts and education savings trusts for parents saving for their child’s education and college expenses. With a trust, there are no annual contribution limits, and like Coverdell ESAs, anyone can contribute to it. With HESM provisions included, Kiss Trust lets parents create and fund trusts that can be used for education expenses. There is no limitation on annual salary either, so these trusts are available for anyone with a need to save and protect money for a child’s education. Unlike a Coverdell ESA, you can set distribution options to extend beyond the cutoff age of 30 years old, while preserving its principal. With one trust, family members can save for a child’s education, first home, retirement, and beyond with assurance that the funds will be used for the specified reasons.

Thus, a Coverdell ESA is an attractive savings plan for many families with the inclusion of qualified elementary and secondary education expenses, but it does come with its own set of limitations. When researching savings plans for college tuition, compare advantages and disadvantages with every plan before making a final decision that you may end up regretting.

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Tags: College Savings, Education Trust

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