Ask Terry Questions Giving money to children, grandchildren

Giving money to children, grandchildren

By Terry Savage on November 10, 2013 | Wild Card

I want to invest $10,000.00 for my two children, and my three grandsons; totaling $50,000.00. I want separate safe accounts, high yield that they can take out if there is an emergency; what do you advise. Thank You

SAVAGE SAYS: First, let me say your intentions are admirable.  BUT,  I want you to be very careful that you are not giving away money that you might need!  You won’t get this money back in case YOU have an emergency!

Second, these days there is NOTHING that is both high yield and safe and liquid.  That’s just a physical imposibility!

Third, you don’t give me ages or situations, so let me make some general comments.  For the grandchildren, if you want the money to go for their education, then go to Vanguard and open a 529 College account, where the money will grow tax free if taken out in the future to use for their college education (and where you can take the money back with a slight penalty, if you need it — or if your grandchild turns out to be a “dud”!)   The fund can invest the money appropriately for growth, based on the ages of your grandchildren, but you remain the trustee.

For your adult children, you have little choice but to make an outright gift — and let them use it as they want, now or in the future. If that isn’t your intention, then you could open a bank account that would be made payable to them on your death.  Or, if they have individual retirement accounts (IRAs) already open, and qualify based on earned income for the year, you could have the money directly deposited in their IRA — where it would grow tax-deferred until they retire (but they must qualify based on income on their own for opening such an account and making a contribution this year) . Or consult an estate planning attorney about setting up some trusts – although the amounts involved here are likely not worth the legal fees, unless you plan future gifts.

Bottom line — think twice about giving away money you might need for your own future care, especially to your own adult children.  You can be sure they will have an “emergency” need for that money very soon!



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