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Saving for college? Look closely at potential drawbacks in trust funds

It is probably one of the simplest ways to save for children's college education. But, the Uniform Gifts to Minors Act is so simple it may be easy to miss an important drawback.

Parents who have used these accounts are usually attracted by the tax advantages. The account is opened in the child's name and managed by a custodian , often a financial adviser or bank trust officer. You can put stocks, bonds, or cash into the account. The custodian manages the property and when the child is legally an adult--age 18 to 21, depending on the state you live in--the money becomes his.

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But until then, the parents pay no taxes on any interest the account earns and the child pays no taxes until the annual interest passes $1,000. Even then, the tax is based on the child's tax bracket, almost certainly far lower than Mom and Dad's.

However, college financial experts advise, this tactic could backfire for parents and students who need to supplement savings with some form of financial aid or loan from the college.

And in these days when colleges are faced with the possibility of reduced federal assistance and a smaller guaranteed student loan program, this drawback could get even bigger as colleges expect students and their parents to pay a larger share of tuition costs.

The problem with a Uniform Gifts to Minors Act account--and with any money in the childs's name when an application for financial aid is filed--is that many colleges ask the child to contribute a greater portion of his savings toward tuition than they ask from the parents.

Paul M. Lane, formerly a financial aid officer at several colleges, gives an example of how this works in his book, ''The Dow Jones-Irwin Guide to College Financial Planning'' (Dow Jones-Irwin, Homewood, Ill. 60430. $14.95).

If there is $1,000 in the parent's name, they would not be asked to contribute more than $56 from that asset in the student's freshman year. The amount would stay the same in each of the next three years, for a total of $224.

But if the $1,000 is in the child's name, the student would be expected to contribute $350 in the freshman year, $228 in the sophmore year, $148 as a junior, and $96 as a senior, for a total of $822. The child thus would have kicked in $598 more than the parents, more than wiping out any tax advantage.

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Another disadvantage to putting the money in the child's name is the reduction in the age of majority in recent years. When the Uniform Gifts to Minors Act was passed, this age was 21 in almost every state. By now, most states have lowered the age to 18, which gives many children control over the money before they have even entered college. They can choose to do something else with the money, which may or may not be what the parents had in mind.

Also, points out Patrick Naughton, senior trust officer at Chemical Bank in New York, ''once a parent puts the money in the child's name, it's out of their control.. . . You have less flexibility in dealing with that money and investing it.''

Some colleges have already moved to take away the sting of the law by looking at the entire pool of assets a family can contribute--whether the money is in the child's name or not--and then making a decision on the amount of financial aid. If you or your child are considering a particular college, ask the financial aid officer how they treat money in the child's name.

Also, your state may have laws prohibiting different treatment of children's and adult's assets. Ask the financial aid officer about this, too.

Finally, there are some people for whom it makes sense to put college money in the child's name: those who are affluent enough that they do not expect to need any form of financial assistance. For them, Uniform Gifts to Minors becomes one more valuable tax shelter. Social secuity for divorcees

I am 68 years old and work full time. About 12 years ago I was divorced from my husband of 33 years. He is seven years older than I and is on social security. Can I collect my share of his benefits built up while we were married? And if so, am I eligible for these benefits while I am working? E.G.

You are eligible for full spousal benefits as long as you were married more than 10 years. If you are making less than $6,000 a year in your job, you get the full benefit. If you are earning more than $6,000, you may be eligible for a partial benefit reduced according to a formula based on your earnings. Ask your local social-security office if you qualify for these partial benefits. Security of money market instruments

Which of these have the greatest security, money market certificates or money market trusts?

Strictly speaking, money market certificates, sold by banks and savings and loans would be more secure because these institutions carry federal or state deposit insurance. Money market trusts, or unit trusts, are issued by brokerage houses and thus are not insured. But you may be able to invest less money in a trust - $1,000 vs. $10,000, for instance--and have easier access to your money. Most certificates carry heavy penalties for withdrawal before maturity.

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