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Money Management

 
 

A Gift That Keeps Giving

 

As you carefully wrap each gift this holiday season, do you think about which ones the children will break, become tired of or outgrow in a few weeks? Well, a lasting gift for a child, one that could grow in value, might be a good choice. In fact, there is an easy way for you to help a child get a headstart towards the future and at the same time help you save taxes.

If this appeals to you, explore the “gifts to minors” laws. People often don’t know about them. They are one type of tax shelter you may be able to afford and the procedure is not complicated. Read more…

You can invest for children in several ways. Basically, the choices include government bonds, mutual funds with all types of investment objectives, stocks, corporate bonds, savings certificates or accounts. The investment is registered in the child’s name and when he/she comes of age18, in Florida, he will get the funds you have invested over the years. The child can use the money in any way he wants to. This money can be spent on higher education, a down payment on a house, or even to start a business. It is the child’s nest egg.

If you take advantage of these laws, your gifts can help you save on your taxes. Since the child owns the investment, you have given up all control of the investment, any income it earns, such as dividends, interest or capital gains. It is really income belonging to the child. The child’s tax rate is probably much lower than yours, perhaps even zero. This will lower your taxes, especially if you have been putting money away for the child in your own name, collecting interest on it and paying taxes on that income.

You can give up to $11,000 yearly to anyone without paying a gift tax. A husband and wife together can give up to $22,000 every year to any one person and to as many different people as you like without paying gift taxes. So you can make these gifts to as many people as you like.

Of course this sounds pretty expensive. But you can invest for a child with much smaller amounts. In fact, with some investments such as a U.S. Savings bond or savings accounts you can invest as little as $50.

For a deposit of $500 or less you can give the child a Certificate of Deposit, shares of mutual funds, or stocks. And you can add as little as $25 or $50 to these investments on special occasions such as birthdays. Parents, aunts, uncles, grandparents, in fact, any adult can invest for children under these gifts to minor’s laws. Or you can prepay college tuition. If you are interested or have questions talk to a financial advisor. He or she can tell you how to set up this type of a gift and inform you of any other requirements. They can also tell you about the benefits of the different investments.

Prepared by
Dr. Josephine Turner, CFP
University of Florida

For more information on this topic reference: UGMA/UTMA Accounts: Common Questions and Answers and http://beginnersinvest.about.com/od/ugma/