Ask Terry Questions Trust fund for a minor

Trust fund for a minor

By Terry Savage on October 16, 2018 | Wild Card

I would like to know how to set up trust funds for my grandchildren. Something that my wife and I can deposit funds in on a regular basis and not allow the minor grandchildren to have access to the funds until we decide they are old enough to handle or in our absence until their parents believe they are old enough and responsible enough to handle the funds. Who can help us set these up in good quality investments? Thanks!

Terry Says

Probably the easiest thing to do would be to set up a 529 College Savings Account. The money inside the account grows tax free if used for college. You can easily set up this type of account at Fidelity or Vanguard. Learn more at Or read my most recent article on the subject. You can contribute to this type of account on a regular basis — or combine 5 years of the allowable gift tax exclusion ($15,000 a year for each of you to each child!) and jump start this account with $150,000 per child, if you’re feeling generous.

BUT there is one drawback. When the child reaches the age of majority — 18 in most states, but 21 in some states — the money belongs to the child legally. Of course, if the child isn’t aware of the account (because you, as grandparents, are the “custodians” and the mail comes to you with the quarterly statements) then this is a moot point. Most kids won’t know, or will think the money is only for college.

Note: you can withdraw this money at any time (if your grandchildren don’t please you!) by paying a 10 percent penalty and ordinary income taxes on any gains.

If you want to be more controlling and more secure about this process, go to an estate planning attorney to set up a trust. Then you can set the ages of distribution — perhaps 20 percent upon college graduation, and another 50 percent of the balance at age 25 — or any formula you develop. You’ll have to name someone to be the trustee — especially if you are not around when the time comes to distribute the money. You don’t want a bank taking control of this process!



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