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Paying for College: Whose money to use?

, New Jersey Law Journal


In a perfect world, lawyers and litigants sending their children to college have set aside some money for that eventuality. Assuming that funds are saved in a 529 plan and/or a uniform transfer to minors (UTMA) account, consider the differences between those two accounts before writing tuition checks.

The holdings in a New Jersey UTMA account belong to the child, as an irrevocable gift from whoever contributed to the account. As a result, the UTMA holdings cannot be divided in equitable distribution or necessarily used to pay for college because New Jersey case law indicates the estate of a minor may not be used for his or her support if those who are legally responsible for the minor have sufficient funds to fulfill their responsibilities. As a practical matter, although the funds belong to the child, the statute provides few limitations for transfers valued at less than $10,000. The custodian can make most transfers considered to be in the best interest of the minor. Therefore, funds could possibly be used for college costs, if the custodian intends for the child to contribute to the expense. 

In contrast, any adult who opens a 529 account remains the owner of the deposited funds, regardless of who is named as the beneficiary. Savings in a 529 account, however, can be withdrawn for qualified educational expenses of a student who is attending at least half-time.  Since the parent owns the 529 account, this comports with the philosophy of defraying or meeting the parent’s support obligations without invading a child’s UTMA funds by using the parent’s funds for a child’s college costs.

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