Question about age/owership issue?

[Duckfan-in-Chicago]

I was thinking about adding on points because, well, its a disease at this point. Anyway I started to think that I wouldn't need so many points when my son became an adult, so maybe I could give him some of mine at that point. The problem is I know someone who gave their child an add on contract, and they still had to clear ROFR, and then claim the amount that cleared as a gift to their child to the IRS. You have to inflate the value a little to not lose the contract, and then claim the higher amount.

Does anyone know if DVC would allow me to get a new contract with my son listed first (at age 1) and me listed second as cosigner to avoid having to do all that. I would just use the points as mine until I decided to give it to my child.

 

[JimMIA]

My first piece of advice here would be to talk first to Disney, and then to an attorney who is familiar with trusts.

The problem is I know someone who gave their child an add on contract, and they still had to clear ROFR ... You have to inflate the value a little to not lose the contract

That's the part I'd check with Disney about. I believe they just automatically waive ROFR, although in your position, their policy could change before you are ready to make the transfer.

and then claim the higher amount.

I'm not sure there is any "claiming" or reporting that's done. There is an exemption from the gift tax (used to be $10,000, not sure what it is now), but I don't know if, or how, that would be reported. It may be one of those things that is not reported, but is explained if it's ever questioned by the IRS.

Does anyone know if DVC would allow me to get a new contract with my son listed first (at age 1) and me listed second as cosigner to avoid having to do all that. I would just use the points as mine until I decided to give it to my child.

Don't know the answer to that, but an alternative might be a Uniform Gift to Minors Act (UGMA) trust. Trusts are legal "persons," and can own just about any kind of property. Our DVC is actually held by a family trust, as are many others.

You would set the UGMA trust up with you as the trustee, with your son as the beneficiary, and also with contingent trustees and beneficiaries in case something happened to either of you. The trust would hold title to the DVC interest, and as trustee, you would manage the trust until your son turns 18. You can use the trust for any purpose you are not required to provide your son, and you're clearly not required to provide him with Disney vacations. You could even rent points if you chose, provided that the proceeds were deposited back into the trust, and eventually used for his benefit. If there were any income to the trust, it would be attributed to your son, and taxed at his tax rate. A lot of people use these trusts to save for college.

One thing you have to understand about UGMA trusts, however, is that they are irrevocable. Once funded by some kind of gift, you can't take it back. Also, when your son reaches legal maturity (18 in most states), the trust automatically transfers to his ownership.

 

[JimMIA]

One other thing about UGMA trusts. You don't need an attorney to draw one up for you, as long as you research it and understand the requirements, etc. You can get a "trust declaration" form from any broker, and probably at any large office supply store forms department. You just fill in a few blanks on the form, sign and notarize it, and keep the document in a safe place. You'll have to file copies with brokers/banks if you use it to open accounts for the trust.

However, when you do the add-on with Disney, they will want an "Attorney's opinion letter," rather than a copy of the trust declaration. That letter states that the trust exists, you are the trustee, and the purchase is permissible under the trust and you have the authority to do it. If you don't already have a relationship with an attorney, they are going to charge you for handling that paperwork with Disney.

 

[Cruelladeville]

There is also such a thing as a REvocable trust, too. I don't know which would be best, but as I understand it, if you put all your DVC into a revocable trust, your children don't actually own it. One of them is the trustee--obviously, the most trustworthy one . That child makes sure that the dues are paid, and all kids can use it, but it belongs to you, even after death, I have heard. I talked to Jaki at Timeshare Brokers(?), and she suggested this--she has one for all her kids.

 

[Duckfan-in-Chicago]

There is an exemption from the gift tax (used to be $10,000, not sure what it is now), but I don't know if, or how, that would be reported. It may be one of those things that is not reported, but is explained if it's ever questioned by the IRS.

Yes, I believe its still $10,000 per parent per year. Thats why I would rather do it upfront and make the loan payments be the gift for the year. This would be much lower than $10,000. If I were to transfer the whole deal over when he turned 18 then the value could be over that (or whatever the limit is at the time) and then be taxable.

The trust is interesting too. If I did use the points they would be for his vacation anyway. And if I ever did have to rent these points, I'm sure that I could find some way of spending the money for his benefit without handing over a big check to him along with a timeshare when he turned 18.

I was planning on talking to Disney when I go down in Oct. anyway. There is no rush and I'd rather do it face to face than over the phone. I just figured I'd post here since someone else may have come across the same situation.

 

[JimMIA]

Right, a revocable trust is created by the "grantor," who has the ability to change the terms of the trust at any time. The trustee's can be anyone who meets the requirements of your state law (usually adults), and they administer the trust, following the instructions put in the trust by the grantor. Another thing that is specified in the trust declaration is what happens when the grantor passes away. Sometimes the trust is dissolved and distributed, other times it continues as an irrevocable trust. Our family trust started as a revocable trust.

The good thing about a revocable trust is the grantor is not giving up anything, and can make changes at any time. The downsides are that you will need an attorney to draw up a revocable trust, and any income is taxed to the grantor as long as the trust is irrevocable.

For larger piles of assets, a revocable trust might be the best suggestion. But due to the costs of creating one, and the loss of the ability to divert tax liability, it may not fit your particular needs. You'd really need to talk to an attorney about that.

 

[JimMIA]

Yes, I believe its still $10,000 per parent per year. Thats why I would rather do it upfront and make the loan payments be the gift for the year. This would be much lower than $10,000. If I were to transfer the whole deal over when he turned 18 then the value could be over that (or whatever the limit is at the time) and then be taxable.

This is not as big a limitation as it first appears. It's $10,000 per person, per year -- so you could give $10,000, so could Mommy, so could Grandpa, etc.

 

[lllovell]

It has also been raised to $11,000 per year tax free gift. There are no strings attached as far as WHO you are allowed to gift nor to how many gifts you can give or receive, as long as they are all not above $11,000 to any one individual.