It would practically amount to a crime if an 18 year old were to have control over his or her education fund. Though extreme as it may sound, it should not be ruled out as a possibility. Who should have control over a Coverdell Education Savings Account and what are the ways in which an account can be controlled? Here are some pointers.
In a 529 account plan, the parent or account owner has absolute control over the operation of the account. The entire amount can even be refunded into your name. This is not the case with a Coverdell Education Savings Account. This account can only be operated by the parent or guardian and is maintained for the purpose of the benefit of the child. The account owner, in this case either the parent of guardian, is not refunded in any way for the money thus utilized.
The sole beneficiary of the Coverdell Education Savings Account is naturally the child. But since the child is not of legal age when the account was first generated, a parent of guardian is appointed as the “responsible person” to have access to the account, until the child reaches 18 years of age.
Unlike other accounts like UTMA or Uniform Transfers to Minors Act and UGMA or Uniform Gifts to Minors Act, The Coverdell ESA nominates authority only to the adult, thereby preventing the minor beneficiary from misusing the funds. In the unfortunate incident of a death of the beneficiary, the funds will automatically be paid to the estate, unless otherwise there is an authorization to change the beneficiary to a surviving family member.
The Coverdell ESA prevents the authorized person from utilizing funds for any purpose other than for the student’s educational expenditure. While establishing the account, it may be essential to restrict the power of responsibilities of the account head, if the beneficiary is not going to be changed.
As an authorized head of the account, you need to be clear about the responsibilities and obligations involved. Discuss at length with the account providers if there are any queries. A Coverdell ESA is one of the best strategies that a parent or grandparent can adopt to help provide for the child’s future educational expenses.
© Decey 2009
