Hi, my daughter will be HS senior autumn 2017 and we will be filing FAFSA and CSS for the first time. I made the mistake of putting $10k into an UTMA for her when she was little, not understanding the effect on financial aid. At the beginning of 2017, the UTMA had increased in value to $32K with $11K in unrealized capital gains. It was never intended to be college savings. We also have parent-owned 529s for college.
What I’ve been doing is spending the UTMA down this year on purchases for her benefit, before we file FAFSA this autumn. Any amount that remains, I think I’m going to transfer to a student-owned 529 before filing FAFSA, but I’m trying to spend it all down if possible. I bought her 2 cars (first one engine went out), driver’s ed course, car insurance, trip to Disney, two summer educational programs, new clarinet, new computer, and a bunch of other smaller things. Plus I live in Ohio, and the Ohio UTMA statute explicitly states that an UTMA custodian CAN spend UTMA assets on support obligations such as food and housing.
I have been trying to keep receipts of everything, and currently have a huge envelope of disorganized receipts. I don’t have any written ledger yet, and I know that I don’t have every single receipt. I transfer money from the UTMA directly to my main checking account and then spend it on daughter from there. I know that co-mingling UTMA assets and my personal assets like this is questionable, but a custodian is allowed to do this as long as the UTMA assets do in fact get spent on daughter.
But for some things I bought for her, the paper trail is pretty hard to follow. For example, both cars were titled in my name, because she is 17yo and I’m paying the car insurance. Another example, I have a receipt that shows I bought a computer, but no documentary proof that I gave it to her.
I couldn’t be less worried that my daughter or anyone else in the family will bring a civil suit against me for breach of fiduciary duty due to my disorganized and less than perfect accounting of the UTMA assets. Also, I don’t think the IRS gives a hoot either, since I’m in higher tax bracket than daughter so there are no tax-evasion red flags.
What I am worried about is that a college will dig into the FAFSA or CSS figures and I’ll be flagged for full audit. If that happens, will they just take my word for it that the UTMA was spent down for daughter’s benefit? Will they want to see receipts or transaction-level detail? Has anyone experienced this before? I know a college can ask for any information they want, but has anyone here actually ever had a college dig into withdrawals from an UTMA before?
Thanks!