I have 3 nephews and a niece, all under 6yo. I'm single and in a position to put aside ~$500/yr/child. I'd like to do this with securities and take advantage of some compounding.
I'm not ruling out a 529 plan, but I think my parents are funding that to some degree. At this point the children's families are in pretty good financial situations as far as I can tell such that affording a decent education at a state school shouldn't be a problem. I also know the children are named in my parents will and I'm assuming each child will receive ~$45k+ upon my parents death in ~20yrs.
On the flipside, I'd like to set up a UTMA/UGMA but don't like the fact that the money in these accounts would count against them when applying for financial aid for college. I have no clue how detrimental such assets might be in getting aid. If I personally invest the money and simply 'earmark' it for each child back of the envelope calculations would put the money set aside at probably somewhere close to or below the Gift Tax Exclusion(currently $14,000 limit). (Along those lines is the Gift Tax Exclusion only in regards to cash? Or does it cover gifting anything of a certain value?)
I'd also like to prevent them spending the money on fleeting material possessions instead of using it wisely i.e. keeping it invested or for a house downpayment etc etc. I realize that this is more of an education and social temperament thing but still I'd like for them to value and use the money wisely or to sit on it until they are set up so they appreciate the value of the gift. I'd like to instill some sort of financial literacy/education in the gift and not end up further feeding a credit card abuser, god forbid that happens.
I'm therefore interested to find out what other good ways there are to gift them the assets. Can I gift securities to them such that I don't incur capital gains taxes?
EDIT: The Gift Tax comment was mentioned because based on the amount I plan on putting away each year I could simply manage the money outside of a 529 / UTMA / UGMA and give them a one-time lump sum.
I'm curious if I've missed any other options as to how to gift them money.
I'm also curious about the pros/cons of each method. From what I can tell UTMA / UGMA gifts them money such that taxes are minimized but which negatively impacts their financial aid prospects. Also they may not mentally ready for such a windfall. A 529 has the pros of UTMA / UGMA (from what I can tell) but is reserved simply for education (and can be shuffled to one of their cousins if need be). Managing money outside would give me greater control as to timing of the gift, but if invested in securities would result in a tax bill subject to my tax rate.
A) What other options are out there to gift them money/securities/assets etc
B) What are the pros / cons to each so I acn pick which is the lesser evil I want to pursue