Gifts to children are something we all think about at one time or another. Whether it is for a holiday, a birthday or for no special occasion choosing a gift can be an undertaking. Certainly toys and clothes are the first thoughts that come to mind when we think about gifts for children and grandchildren.

We would like to buy something that we think the child will like, but at the same time we would like to buy something that can be of everlasting value to our loved ones. If that is the case one of the other thoughts that come to your mind is: "How about buying the child a stock or a mutual fund". In this article I will discuss the basic procedural steps that are involved in this process rather than suggesting what stock or mutual fund to buy.

At the outset let me state that this discussion will not cover either "Educational IRAs" or the various State College Scholarships Funds that have been initiated recently. Please keep in mind that the government has increased the amount of money that you can give into either of these two vehicles. You will have to discuss these two programs with your individual financial advisor to see if you should utilize either one of these programs. I will explain herein the procedural steps that are involved in order to be able to buy stocks or mutual funds for a child.

For our situation we will be talking about buying a financial security in New York State. Each individual state has its own particular rules on this matter.

The first thing that you must know when you are buying something for a child is that the child must have a Social Security number. Yes this requirement applies even for newborn children. When you open an account at a brokerage firm, mutual fund, or even if you purchase the stock directly from the issuing stock company you must supply them with the child's Social Security number.

You can get a temporary delay by explaining that you or the child's parent has applied to the Social Security Administration for a number and you will be allowed to make the purchase. You will have 45 days thereafter to supply that Social Security number to the firm that opened the account. You must keep in mind that the Federal Government will assess a fine against the opening account firm unless that number is supplied within certain time limits. The opening firm will not be allowed to send out the security purchased unless a Social Security number has been supplied to the firm.

In New York State a child achieves maturity at the age of 18 years. Thus no security can be purchased for anyone under 18 unless a guardian has been appointed for that underage individual. Anyone, even if unrelated to the child, can be designated as the guardian. No formal legal process whatsoever is required.

The guardian can not give his/her Social Security number instead of the child's number. The security belongs to the child. Once the child reaches the age of 18 he/she can dispose of the asset as they see fit. Even if the donor absolutely does not want the security to be sold, it is solely up to the individual reaching 18 years of age to make that decision.

If during the child's minority money is needed for a "necessary and essential "item of support for the child, the security can be sold and the proceeds used for the child's support. The named guardian is the only one who can give the order to sell the security. In the event of the death of the guardian before the child achieves the age of 18, a substitute guardian must be named. The question often arises whether or not the security can be sold to pay for the child's education. As a general rule Courts have allowed the sale of securities to pay for educational needs of the child.

Please keep in mind also that any income that comes to a child under 14 years of age in New York State will be taxed in the same tax bracket as the parent's bracket. Once over 14 years of age the child than comes into his/her own tax bracket independent of the parent's bracket.


FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing Home"

By Allan Rubin
May 9, 2002

http://www.therubins.com

To e-mail:rehabstrat1@aol.com or rubin@brainlink.com

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