I live near a mall because my roommate thought that an apartment that was located near convenient shopping was a great idea. But traffic became a nightmare when the holiday shopping season arrived. My location has reinforced my online shopping habits because I will not, dare not, venture into that mess. One gift that I handled totally online was a trip to New Orleans over Christmas with my daughter (she actually preferred this idea over an iPod!). The other gift is also an online purchase - a deposit into her investment portfolio.

I hope that last sentence caught your eye, because I'm going to convince you that a guardian account for your child is a great last-minute gift idea. This is the gift that grows over time, and it's a gift that can become a family holiday tradition. Here's how it works?

A custodial account for a minor is an account that parents open in the name of their child. As a parent, you retain total control over this account until your child comes of age. This particular custodial account can be opened as a Uniform Gift to Minors Act (UGMA), as a Uniform Transfer to Minors Act (UTMA). or as a Coverdell ESA (Education Savings Account).

UGMA/UTMA accounts were established so that a custodian can contribute to a minor's investments without the need for an attorney to draw up a trust. Once the account is open and money is deposited, that money then belongs to the minor. The custodian, however, has a legal fiduciary responsibility to handle the money in a prudent manner for the benefit of the minor.

"Prudent" simply means that the custodian (one parent) can purchase common stocks in the minor's name in this case. And, when that minor comes of age (18-21 depending on resident state statutes), he or she has complete control over the account even if that control is against custodial wishes. But, if you taught your child over the years how to handle money and investment accounts, you won't have any worries about this takeover, right? (If you're just now reading my articles for the very first time, you might want to read the previous three articles.)

Anyone can contribute to this account, but the custodian must apply the deposits and purchase the equities. And, unlike an IRA, there is no limit to the amount of money that can be deposited into this account. But - beware - once you place money into this account, you have literally signed it over to your child. You cannot take that money back, possibly even if your underage child wants to sign it over to you.

Another problem that might occur with this account is centered on estate taxes. Some advisors suggest that the person who handles the account shouldn't be the person who makes donations to that account. The reason behind this advice is that the IRS looks upon the custodian who also donates as a person who exercises sufficient control over the assets to warrant inclusion of the UGMA/UTMA account in his or her estate.

Alternately, the UGMA/UTMA account is one way to avoid huge estate taxes if you die. If you give away assets during your lifetime the only problem you face is the gift tax. If you make small donations you can avoid this hassle as well. The annual gift tax exclusion for 2006 will rise from $11,000 to $12,000, so you can contribute up to that amount without paying this tax. If you contribute $10,000 per year for 15 years, you will have transferred $150,000 to that account without ever paying this tax (as long as the tax exclusion doesn't drop below $10,000). That amount doesn't include all the interest that could accrue over that period of time.

While $150,000+ is considered enough money to pay for most college educations, a better route to pay toward this goal might be the Coverdell ESA, which is also available through BUYandHOLD. But, there is a limit on donations to this account. The current maximum contribution is $2000 annually, because the Coverdell acts like an IRA account.

The reason why I say that the Coverdell might be a better route to save for your child's education than the UGMA/UTMA is that you don't pay taxes on a Coverdell account until you retrieve the savings. Although you might be one of those folks who agree with my father's statement, "Why worry about taxes if you're making money?" To him, taxes provide proof that he has, indeed, made money. But I don't like to pay unnecessary taxes, and I do like the fact that I can research this part of the savings solution for my daughter. I can then adjust my giving into her accounts accordingly.

You have time to research all the above accounts before you open one at BUYandHOLD as a holiday gift for your underage child. And, you don't need to limit your choices. You can diversify by opening both accounts. You can ask another relative to be a custodian for one account, and you can be the custodian for the other account.

The point is to begin now, because you have less time to save for your child as that child ages. You can begin with as little as $25 per month and increase that amount as the years go by. You can also add bonus payments for holidays and birthdays. Just ask your teen about the value inherent in the compound interest + time equation. If he read the previous two articles, he knows plenty about this financial benefit.

You can also avoid holiday traffic with this gift. Priceless.

Until Next Week,
Linda Goin