Trust fund

Want to set up some kind of trust fund for the youngest grand baby.
What is the best route to go?
Want to set it up to where she can't bother it till she is 21.
She is or will be 2.
Did not know to start a savings account or what.
Want something that will pay interest over the time.
Thanks.

Re: Trust fund

always a tricky one.
If you do it for one, then maybe you may have to do it for all (what's in the future??).
You have to work out if it is going to be a one-off payment into the trust, or if you will contribute to it one a regular basis.
If it is a sizeable amount, then is that going to effect your future standard of living....you have moneys in a trust you may well need yourself one day.
What is the set-up cost and then the ongoing costs.
Does it need an annual audit and-or return to someone like your tax authority.
The first port of call is usually the family solicitor.
An old fashioned way use to be.....buy the kid an Endowment Insurance Policy.
Note: an Endowment Policy is one that runs for a fixed term, with a fixed contribution for a fixed maturity value, most often with a small insured value (death value), meaning you don't have your contributions eaten up with the cost of the death cover and the policy fees.
Another inexpensive way is to open a simple fee-free Bank type savings account, in their name, and you contribute as you wish, and you don't tell them until maturity.
I have avoided trusts to this point. I use my Will to distribute assets, so if my circumstances were to change, then I can get access to the funds if I need too.
My 3 kids are all totally different, and their needs and expectations are totally different, so one cap dosn't fit all.
These things need a lot of consideration, so my advice is to take your time, and think it thru properly. There is no hurry, so let the dust settle and approach it very logically.
Sorry for rattling on.
Good luck
Cheers
Phillip

Re: Trust fund

Phillip, I have the savings account thing going on with the other 6.
Just thought I would see what other avenues there would be to look at.

Re: Trust fund

An easy way is an money market fund or other investment with the child as the benificery,gives you access if needed,if something happens they can't touch it till legal age ....with good returns also better than savings accounts

Re: Trust fund

dolluper said:

An easy way is an money market fund or other investment with the child as the benificery,gives you access if needed,if something happens they can't touch it till legal age ....with good returns also better than savings accounts

Click to expand...

Good advice.

You really need to talk to an estate-planning lawyer (or solicitor, as our Aussie said). There are multiple conflicting complications, and only you, your attorney and/or tax man can say for sure.

1) Anything under the child's social security number is taxed at her parent's rate, presumably much higher. There is a threshold here (can't remember wxactly, but it's pretty low). Also, when the child reaches legal majority (usually 18), it's hers to do with as she want.

2) Anything under your ssn is taxed at your rate; you can have her as beneficiary, but if you die and she gets it, same problems as #1.

3) Do you want to skip generations? That is, have her get it without her parent's involvement?

4) All of these take an attorney to set up. Now you could buy a couple books and set it up yourself, but is the degree of risk from others (IRS, her parents, your other grandkids) worth it?

All of this has to do with the legalities of setting something up. Once that's determined, then you have to choose the specific vehicle. Since this will go for probably 18 - 20 years, it should be in some form of stocks (as opposed to savings accounts or CDs). A good mutual fund would be an excellent choice. Just realize that you'll need to spend some time researching which one(s) to invest in, and that you should re-evaluate them at least once a year and be prepared to move the money from one fund to another as appropriate. So you will also need to retain administrative control over your trust fund, if not ownership.

This is an area where professional advice cannot be avoided.

Re: Trust fund

I agree with arboldt. (hey! from the same town!)

You should seek advice from a trusted financial adviser. There are too many vehicles and too many ways so one size doesn't fit all.

UGMA accounts (uniform gift to minors act) are one way. Yes, a conservative growth / income fund in the stock market loooong term might be good. Watch the fees and structure there. Sometimes after management fees and loads, you end up earning less than money market.

You CAN set up an account with joint ownership, or UGMA, or rights of survivorship with a minor in an online brokerage account. I use TD Ameritrade. You can have monthly automatic withdraws done to deposit in the account. There are some online brokers that charge less per trade to buy stocks. I think there's one, that's FREE to buy or sell. Zecco is $4.50 per side if the account is under $2,500, FREE if over. Share builder is another service that's very low cost. If you have a good relationship with a major bank, they too may have low or no cost stock buying programs. You can buy stable long term positions in companies like AT&T or your local utility (dividends) or whatever you know or believe in. There's risk, but potential greater reward than just a simple interest account.

Again, as said, it depends on your time frame, risk management ect.....

The annual limit for gifts tax free is $12,000 per person. (this year) It goes up once in awhile. I've actually set up Roth IRA's for my kids as soon as they had income, to get them rolling on a tax free retirement program.

Lot's of creative ways to structure money....if you have some.

Re: Trust fund

from my seat

i am the trustee on and account my parents left for my younger and older brothers

It has a wide mix of investments that have done well even in the current market BUT it requires a complex federal return based on the different ways it earns money,(cost 200 dollars to be figured out per year) because it is in a Delaware bank there is no state tax

Re: Trust fund

SBN,

This a job for a Tax/Family lawyer. They do not charge much for this but they can best advise you and can draw up "bulletproof" trust papers.

Look for "family law" attorneys/firms.

Pay up front, DO NOT give them a cut of the "trust".

We. recently, did this with my parents. It was easy, straightforward and the lawyer gave us many options. He guided us through the best alternatives. I was appreciative. He earned his fee.

For once (only time) in my life, I hired a lawyer and it has proven to be a good decision.

This decision can be HUGE, in that the "death tax" get's reinstated in 2010 unless someone, with any sense, declares the death tax void and "permanently void" after 2010.

Trusts can get large, over the years. Plan ahead.

Re: Trust fund

Lester, what DJ said is definitely the way to go.

Re: Trust fund

I would be the last person in the world to give any financial advice as hard as I have worked and as poor as I am but I listen the Clark Howard syndicated radio show most nights and his website is where I look for advice in financial matters,mostly to see where I went wrong over the years...lol.....but it is a good source of unbiased information and in fact his staff will call you at your request on their dime at a time of your choosing to help you along.Ron G
http://clarkhoward.com/