Our EFC, if the UTMA were to be in my name, would be under $8K. With my kid still in possession of the UTMA, that would go up to more than $18K. So who owns the asset will make a BIG difference to the EFC, and given the schools we’re looking at, the need-based aid would be significantly affected.
So even with the additional taxes, it makes sense to switch ownership - with my kid’s permission and assistance, of course. I will then keep it in a separate account to be used only for college expenses. Nobody will have no cause to sue!
I got a bit more information from the HEFAR guy today. Liquidating this year would result in capital gains income which would have to be reported on the FAFSA for this year. Since 2015 will be counted twice, and since my kid is a transferring as a junior, 2015 is the only year that will end up mattering. So it makes sense to wait until the beginning of January.
It turns out that liquidating will result in about half of it being taxed. Both my ex and myself will probably have lower income in 2016 compared to 2015, so hopefully by waiting the gains will be taxed at a lower rate.
Thank you all! This was very helpful!