Account for Adult Children Allowing Parent Some Control

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arf1410
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Account for Adult Children Allowing Parent Some Control

Post by arf1410 » Sun Apr 15, 2018 12:55 pm

I've got two early 20's "adult" children, one at the start of a career, the other in the middle of a very long educational path. I am the beneficiary, and Trustee, of a Trust, that allows me to also use it for my descendants. The last couple of years, I have been "K1'ing" $$ to them, up to the smaller of their earned income, or the ROTH IRA limits, to sock away long term, and the K1 doesn't affect their low income taxes (aware of kiddie tax, different discussion). I am in the fortunate position of having more money I would like to send their way, while their tax rates are much lower than mine, but the intent is not for their immediate use. Maybe pay for their wedding, down payment for a house, etc. So the question is, is there a type of account titling/ownership, such that the account would be in their social security number for tax purposes, but they couldn't actually spend without my signature also?

sport
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Re: Account for Adult Children Allowing Parent Some Control

Post by sport » Sun Apr 15, 2018 12:59 pm

You have been trusting them not to cash out their Roth IRA accounts and just spending the money. You should be able to do the same with a taxable account.

afan
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Re: Account for Adult Children Allowing Parent Some Control

Post by afan » Sun Apr 15, 2018 3:05 pm

You can create trusts with yourself as trustee and the adult children as beneficiaries. You can have a lot of discretion over whether to make payments to them or retain the money in trust. You would have to decide whether the amount of money you have in mind is worth the cost and hassle of the trust.
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badbreath
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Re: Account for Adult Children Allowing Parent Some Control

Post by badbreath » Sun Apr 15, 2018 4:32 pm

by sport

You have been trusting them not to cash out their Roth IRA accounts and just spending the money. You should be able to do the same with a taxable account.
Sit them down tell them what you want to do, why you want to do it and how you would like them to invest it. If they both agree move forward.

You need to trust them a bit.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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Phineas J. Whoopee
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Re: Account for Adult Children Allowing Parent Some Control

Post by Phineas J. Whoopee » Mon Apr 16, 2018 4:35 pm

What's the difference between adult without scare quotes, and "adult" with them?
PJW

DarthSage
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Re: Account for Adult Children Allowing Parent Some Control

Post by DarthSage » Mon Apr 16, 2018 4:54 pm

badbreath wrote:
Sun Apr 15, 2018 4:32 pm
by sport

You have been trusting them not to cash out their Roth IRA accounts and just spending the money. You should be able to do the same with a taxable account.
Sit them down tell them what you want to do, why you want to do it and how you would like them to invest it. If they both agree move forward.

You need to trust them a bit.
This. Perhaps start with smaller amounts the first few years, and see how they do.

I've found that my kids are very receptive to the idea of legacy money, and the thought of using it for specific purposes. Even my 12yo gets this.

GlacierRunner
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Re: Account for Adult Children Allowing Parent Some Control

Post by GlacierRunner » Mon Apr 16, 2018 5:33 pm

I love that you want to provide support to your children in this way. Can I ask though, what if they don't get married or purchase a home for a decade or more? What if they decide to go back to school or change careers or something else? I try not to put strings on financial gifts.

arf1410
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Re: Account for Adult Children Allowing Parent Some Control

Post by arf1410 » Mon Apr 16, 2018 8:38 pm

GlacierRunner wrote:
Mon Apr 16, 2018 5:33 pm
I love that you want to provide support to your children in this way. Can I ask though, what if they don't get married or purchase a home for a decade or more? What if they decide to go back to school or change careers or something else? I try not to put strings on financial gifts.
I'm OK with using it for really any significant, life changing sort of item...but the point was funds to be used for long term benefit in some way... as opposed to a car or a generic vacation...

Wagnerjb
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Re: Account for Adult Children Allowing Parent Some Control

Post by Wagnerjb » Tue Apr 17, 2018 8:05 am

Here is how to do it:

Tell your adult children that you are going to set up an account in their name and you will fund it.....but that it is for long-term purposes (as you determine) and they are not to worry about it.

Open an account in their name at your brokerage company - the one you use for your other brokerage business. You will need their signatures on the paper documents to open the account in their name. But be sure to use your email account and your cell phone number and your address on the account application. Once the account is open, you can sign up for online access yourself. You will set up the password and account ID and your children won't know them.

Then you can fund that account from your account via a transfer, and that usually takes a signature (from your child) on a paper document as well.

Once the account is open and funded, go into the child's account online and grant yourself limited powers (I think it is called agency) so that you can see their balances when you log into your own account. If you need to transact in their account, you will need to log in under their account to execute transactions. But if you just want to monitor balances, watch for dividends, etc.....you can see all of that while you are looking at your own account.

I would not suggest that you tell the brokerage what you are doing, as their legal people will frown on it. But the truth is that your children know about the account and they have explicitly agreed to allow you to manage the account and have access to it. My recommendation serves your needs.

Best wishes.
Andy

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KlingKlang
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Re: Account for Adult Children Allowing Parent Some Control

Post by KlingKlang » Tue Apr 17, 2018 8:47 am

Wagnerjb wrote:
Tue Apr 17, 2018 8:05 am
Tell your adult children that you are going to set up an account in their name and you will fund it.....but that it is for long-term purposes (as you determine) and they are not to worry about it.

Open an account in their name at your brokerage company - the one you use for your other brokerage business. You will need their signatures on the paper documents to open the account in their name. But be sure to use your email account and your cell phone number and your address on the account application...
If you open up accounts using your children's names and SS numbers then they will be responsible for the taxes on the earnings. At minimum you will have to send them copies of the 1099s to use in completing their tax returns. My parents tried this with myself and my daughter (and kept the money for themselves). People are likely to resent paying taxes on funds that they have no control over.

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Watty
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Re: Account for Adult Children Allowing Parent Some Control

Post by Watty » Tue Apr 17, 2018 9:00 am

One of my favorite quotes is,
Good judgement comes from experience, experience comes from bad judgement.
Reading way between the lines I would suspect that you are thinking of transferring to them is relatively small compared to the total amount in the trust. It is better for them to make mistakes with relatively small amounts so within reason I would be in the camp of just giving them the money to open a seperate account with the expectation that they will send you copies of their account statement once a year. If they don't handle the money well then that could affect how, or if, they get any future funds.

A bigger concern is that something could happen like they could get married and divorced and the ex-spouse could end up with half the money so a trust might be better for that.

arf1410
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Re: Account for Adult Children Allowing Parent Some Control

Post by arf1410 » Tue Apr 17, 2018 9:59 am

Watty wrote:
Tue Apr 17, 2018 9:00 am

A bigger concern is that something could happen like they could get married and divorced and the ex-spouse could end up with half the money so a trust might be better for that.
I would think any funds put into an account in their name only, that was established and funded prior to marriage, and not "co-mingled" would not be considered marital assets.

As far as the tax issue - kids unhappy about paying taxes for money they cannot yet use... well, for the next few years or longer, they would likely be in 10 -15% tax brackets - or maybe lower for capital gains, and if investments where in index ETFs or similar, I would think they would throw off very little taxable income. I am thing gifting in the "10s" of thousands, not 100s+...

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Watty
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Re: Account for Adult Children Allowing Parent Some Control

Post by Watty » Tue Apr 17, 2018 10:18 am

arf1410 wrote:
Tue Apr 17, 2018 9:59 am
I would think any funds put into an account in their name only, that was established and funded prior to marriage, and not "co-mingled" would not be considered marital assets.
That likely depends on a lot of details their state laws. If they have jointely been paying taxes on the account out of joint funds then it would be less clear to me too.

If the amounts are not too large then then money would have likely been used for a wedding or home downpayment long before any divorce so it might not really be a big factor.

Mike Scott
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Re: Account for Adult Children Allowing Parent Some Control

Post by Mike Scott » Tue Apr 17, 2018 10:25 am

You should either gift it to them or just keep it so you can control it.

SheReadsHere719
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Re: Account for Adult Children Allowing Parent Some Control

Post by SheReadsHere719 » Tue Apr 17, 2018 11:47 am

arf1410 wrote:
Mon Apr 16, 2018 8:38 pm
GlacierRunner wrote:
Mon Apr 16, 2018 5:33 pm
I love that you want to provide support to your children in this way. Can I ask though, what if they don't get married or purchase a home for a decade or more? What if they decide to go back to school or change careers or something else? I try not to put strings on financial gifts.
I'm OK with using it for really any significant, life changing sort of item...but the point was funds to be used for long term benefit in some way... as opposed to a car or a generic vacation...
+1 you should use this as an educational opportunity and make your Roth IRA contributions contingent upon your children learning personal finance. Echoing GlacierRunner, I will also say that as a 20-something who abhors the thought of using large sums of money for weddings and houses, a car (reliable transportation) or an international trip (exposure and experience) or other purchase can actually be a long-term benefit to the recipient, just in different ways from the stereotypical life markers you mentioned. Some food for thought.

wilked
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Re: Account for Adult Children Allowing Parent Some Control

Post by wilked » Tue Apr 17, 2018 12:57 pm

Phineas J. Whoopee wrote:
Mon Apr 16, 2018 4:35 pm
What's the difference between adult without scare quotes, and "adult" with them?
PJW
I think it goes

“Adult”
Then you become
‘Adult’
Next
Adult

And then finally Adult around 50 years old

aristotelian
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Re: Account for Adult Children Allowing Parent Some Control

Post by aristotelian » Tue Apr 17, 2018 1:25 pm

I don't think so, unless you are in a state with a high UTMA maturity age. Most of them expire at 18 or 21. The other option would be a trust fund but it doesn't sound like we are talking about an amount of money that would make that necessary. A joint account would let you see the statements and spend money, but it would not prevent them from doing so.

Could you just gift them the money, with the promise of more if they are willing to save/invest? Maybe help them do an annual review of their portfolio each time you cut them a check, which would probably be helpful to them as well as satisfying to you.

HIinvestor
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Re: Account for Adult Children Allowing Parent Some Control

Post by HIinvestor » Tue Apr 17, 2018 1:39 pm

My relative set up joint accounts in each of his adult kids SSNs. The trouble is they are all in 25% or higher marginal tax brackets and this year the relative made short term capital gains. Each of the adult relatives was hit with extra taxes of $8000 to $22,000! They have asked for the funds to pay these taxes as they got no benefit from the accounts.

What we have done is gift funds directly to our kids (under the annual maximum of $15k/person). S has used the funds we have given him to expand his business inventory and max out his retirement accounts. Our D used hers for living expenses while she works on overcoming her chronic health issues. We have not attached strings to any of the funds and have been pleased to see how they have been responsibly using them.

Wagnerjb
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Re: Account for Adult Children Allowing Parent Some Control

Post by Wagnerjb » Tue Apr 17, 2018 7:44 pm

KlingKlang wrote:
Tue Apr 17, 2018 8:47 am
Wagnerjb wrote:
Tue Apr 17, 2018 8:05 am
Tell your adult children that you are going to set up an account in their name and you will fund it.....but that it is for long-term purposes (as you determine) and they are not to worry about it.

Open an account in their name at your brokerage company - the one you use for your other brokerage business. You will need their signatures on the paper documents to open the account in their name. But be sure to use your email account and your cell phone number and your address on the account application...
If you open up accounts using your children's names and SS numbers then they will be responsible for the taxes on the earnings. At minimum you will have to send them copies of the 1099s to use in completing their tax returns. My parents tried this with myself and my daughter (and kept the money for themselves). People are likely to resent paying taxes on funds that they have no control over.
1). The OP's kids Are in school and just starting a career. Neither of them are going to owe taxes on qualified dividends or long term capital gains.

2). If they by chance owe any tax, you can send them the money to pay the tax.

3). If all off their assets are in a Roth or IRA, there are no taxes.

Overall, this shouldn't be an obstacle.

Best wishes.
Andy

afan
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Re: Account for Adult Children Allowing Parent Some Control

Post by afan » Wed Apr 18, 2018 6:35 am

This is a common desire with a straightforward solution:
Trust.

Income retained in the trust will be taxable to the trust, not to the kids. They will be taxed only on income distributed to them.
As trustee you would retain control of investments and distributions.

Money in the trust will be out of your estate and not subject to state or federal death taxes. It will not be exposed to your creditors or those of the kids.

Do not play games with establishing accounts that legally are under the kids control but wink and nod that you will control them.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

pshonore
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Re: Account for Adult Children Allowing Parent Some Control

Post by pshonore » Wed Apr 18, 2018 7:03 am

afan wrote:
Wed Apr 18, 2018 6:35 am
This is a common desire with a straightforward solution:
Trust.

Income retained in the trust will be taxable to the trust, not to the kids. They will be taxed only on income distributed to them.
As trustee you would retain control of investments and distributions.

Money in the trust will be out of your estate and not subject to state or federal death taxes. It will not be exposed to your creditors or those of the kids.

Do not play games with establishing accounts that legally are under the kids control but wink and nod that you will control them.
On the other hand, I believe most trust income distributed will be "investment income" to the kids and may cause problems if the kids are subject to the "kiddie tax".

arf1410
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Re: Account for Adult Children Allowing Parent Some Control

Post by arf1410 » Wed Apr 18, 2018 9:41 am

If the income is left in the Trust, it is taxed at maximum rate, which sort of defeats the purpose.

Also, I'm not certain it is true that moving income into a Trust will exclude it from Estate taxes.

adam1712
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Re: Account for Adult Children Allowing Parent Some Control

Post by adam1712 » Wed Apr 18, 2018 10:02 am

arf1410 wrote:
Mon Apr 16, 2018 8:38 pm
GlacierRunner wrote:
Mon Apr 16, 2018 5:33 pm
I love that you want to provide support to your children in this way. Can I ask though, what if they don't get married or purchase a home for a decade or more? What if they decide to go back to school or change careers or something else? I try not to put strings on financial gifts.
I'm OK with using it for really any significant, life changing sort of item...but the point was funds to be used for long term benefit in some way... as opposed to a car or a generic vacation...
What's so bad about using the funds for a car? I received some money after college that I used to pay cash for a car. There's no way I could have started maxing out my 401k so quickly after I started working if I was making car payments or saving for a car.

arf1410
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Re: Account for Adult Children Allowing Parent Some Control

Post by arf1410 » Wed Apr 18, 2018 10:50 am

adam1712 wrote:
Wed Apr 18, 2018 10:02 am
arf1410 wrote:
Mon Apr 16, 2018 8:38 pm
GlacierRunner wrote:
Mon Apr 16, 2018 5:33 pm
What's so bad about using the funds for a car? I received some money after college that I used to pay cash for a car. There's no way I could have started maxing out my 401k so quickly after I started working if I was making car payments or saving for a car.
Nothing, really, but they each already have reliable vehicles 5 years old with less than 50,000 miles, so a newer, or fancier car shouldn't be a priority at this point in their lives.

Broken Man 1999
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Re: Account for Adult Children Allowing Parent Some Control

Post by Broken Man 1999 » Wed Apr 18, 2018 11:19 am

arf1410 wrote:
Wed Apr 18, 2018 9:41 am
If the income is left in the Trust, it is taxed at maximum rate, which sort of defeats the purpose.

Also, I'm not certain it is true that moving income into a Trust will exclude it from Estate taxes.
I guess the OP will have to decide if the ability to control is worth the extra taxes that might be due under some conditions.

We are very lucky in that our children are 37-41years old, well established in life, and aren't living beyond their means. They are addressing their retirement.

If I were a mind to give them money now, I wouldn't worry too much. Now all the grandchildren won't be totally launched prior to my death, I don't imagine, so I'll have to use something to protect them from themselves (possibly) or others (possibly).

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

DarthSage
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Re: Account for Adult Children Allowing Parent Some Control

Post by DarthSage » Wed Apr 18, 2018 8:37 pm

I was thinking more about this thread, and I was reminded of our situation, close to 30 years ago (which is probably why I had forgotten). DH and I met in our last year of college, and got married at 23/24. His family had means, while I grew up poor. His parents gave us a gift check, and told us that there would be more checks in the future--all we had to do was show them our bank statements and prove that we used the money for items they considered appropriate (like retirement). We turned them down. We felt that the personal intrusion wasn't worth the money--if they couldn't trust us, without seeing our bank statements, then we didn't wan their money.

I mention this because the OP, while well-intentioned, might encounter the same thing--while he's trying to be benevolent, while also steering his children's choices, it might not be perceived that way.

I also want to mention that we were young, but we were college graduates, both with engineering degrees and jobs. We owned our own house, and were saving for retirement. Of course we made some financial mistakes along the way, but we were on a good path. It's possible that the OP's children aren't quite as far along, or have made some mistakes, or have other issues (impulse control, fondness for partying, taste for expensive clothes, whatever) that make him more wary. If that's the case, then waiting a few years or setting up a trust makes sense to protect them from themselves.

Ironically, our own children have been generously "gifted" from my MIL. Rather than doing foolish things with the money, they're content to leave it alone--in fact, they seem intimidated by it. We've been emphasizing the legacy aspect of it for a long time. My FIL ended up dying 3 years after we married, he never met our kids. So, all they have from him is the money, and they treasure it.

Anyway, just some food for thought.

gretah
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Re: Account for Adult Children Allowing Parent Some Control

Post by gretah » Wed Apr 18, 2018 10:20 pm

You might consider setting up a secondary Revocable Living Trust with you as Grantor and Trustee and your adult children as Beneficiaries. This tool could be used in the event you suddenly pass away. (Stuff happens.)

Beneficiaries don't need to know or be involved.

I'm currently reading a Nolo Press book on this topic.

Because you are the Grantor and Trustee and the Trust is Revocable, you can revoke and make a new Revocable Living Trust with adjustments as needed.

With a Revocable Living Trust, you could do as you like with contributing to brokerage accounts, etc. The Trust would be in the background in the event you suddenly pass away.

Assets in the Trust would avoid probate. So probate attorney fees and delays would be avoided. Taxes liability still in effect.

Gnirk
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Re: Account for Adult Children Allowing Parent Some Control

Post by Gnirk » Wed Apr 18, 2018 10:49 pm

For 8 years, my late mom gifted the max for a Roth IRA each year to her four grandchildren, with instructions that it was to be deposited into their Roth Ira accounts. And semi-jokingly added that if they touched it before they retired she would come back and haunt them! :D

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celia
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Re: Account for Adult Children Allowing Parent Some Control

Post by celia » Thu Apr 19, 2018 3:38 am

Wagnerjb wrote:
Tue Apr 17, 2018 7:44 pm
KlingKlang wrote:
Tue Apr 17, 2018 8:47 am
Wagnerjb wrote:
Tue Apr 17, 2018 8:05 am
Tell your adult children that you are going to set up an account in their name and you will fund it.....but that it is for long-term purposes (as you determine) and they are not to worry about it.

Open an account in their name at your brokerage company - the one you use for your other brokerage business. You will need their signatures on the paper documents to open the account in their name. But be sure to use your email account and your cell phone number and your address on the account application...
If you open up accounts using your children's names and SS numbers then they will be responsible for the taxes on the earnings. At minimum you will have to send them copies of the 1099s to use in completing their tax returns. My parents tried this with myself and my daughter (and kept the money for themselves). People are likely to resent paying taxes on funds that they have no control over.
1). The OP's kids Are in school and just starting a career. Neither of them are going to owe taxes on qualified dividends or long term capital gains.
The one starting a career assumedly has a full-time job. We don't know her income or tax bracket, let alone how the dividends or LT gains from this money would impact them. The other one is in school at the moment, but will also likely have a job at some time. So instead of "planning" for today's circumstances, the OP should probably allow the kids to "grow" while learning how to handle money responsibly.

2). If they by chance owe any tax, you can send them the money to pay the tax.
How does this help the kids learn to be responsible and plan to have the correct amount of tax withholdings?

3). If all off their assets are in a Roth or IRA, there are no taxes.
The kids would be better off funding the IRAs themselves. They need to understand the rules, how to open an account, and how to read the statements. Why would you deny them the learning experience? Most importantly, they will lose out on building the habit of saving. When the parent(s) die some year, do you think they will just start saving then?

Wagnerjb
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Re: Account for Adult Children Allowing Parent Some Control

Post by Wagnerjb » Thu Apr 19, 2018 9:59 am

celia wrote:
Thu Apr 19, 2018 3:38 am
They need to understand the rules, how to open an account, and how to read the statements. Why would you deny them the learning experience? Most importantly, they will lose out on building the habit of saving. When the parent(s) die some year, do you think they will just start saving then?[/color]
Celia: i was providing an elegant solution for the OP's question.

The solution is elegant because it allows wealthy parents to save on capital gains taxes by gifting highly appreciated shares to children, to be used for purposes dictated by the parents. I have used this method to fund college costs for one child, to fund wedding expenses for a daughter, to fund a car purchase for a (student) child and to provide matching funds for earnings of a child to be place in a Roth account.

These are educational opportunities for the child. You explain how YOU are saving on taxes. You explain how YOU are matching their summer job earnings as an incentive for work. You explain why you choose the Roth over the traditional IRA. You explain why it is important to use the matching in the 401k in their first job, when they would otherwise choose to spend their earnings on living expenses. I have even funded the amount contributed to their first 401k, as a way to get them in the habit of saving.

This can be both a tax saving opportunity for the parent and an educational opportunity for the child as well.

Best wishes.
Andy

arf1410
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Re: Account for Adult Children Allowing Parent Some Control

Post by arf1410 » Thu Apr 19, 2018 10:30 am

OP here. Lots of great thoughts from folks for me to consider. Kids will likely be in 15% marginal tax brackets, and 0% capital gains for the next several years. And I would think tax efficient ETFs would have minimal tax implications for them. I certainly do like the thoughts about using this as an opportunity for them to learn about savings and investing, and other financial aspects.

afan
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Re: Account for Adult Children Allowing Parent Some Control

Post by afan » Thu Apr 19, 2018 12:08 pm

arf1410 wrote:
Wed Apr 18, 2018 9:41 am
If the income is left in the Trust, it is taxed at maximum rate, which sort of defeats the purpose.

Also, I'm not certain it is true that moving income into a Trust will exclude it from Estate taxes.
The income is not subject to estate tax. The amount owned by someone at death would be subject to estate tax if it clears the state or federal minimum.

When you make a gift to the trust you take it out of your estate. If your gift is more than the annual exclusion then you have to file a gift tax return and use up some of your lifetime exemption, or pay gift taxes.

Then the money in the trust is outside your estate. There will be no estate tax on this money at your death.

The money is not owned by the beneficiaries of the trust, it belongs to the trust. Thus there would be no estate tax at beneficiaries's deaths either.

For most people the federal estate tax exemption is so large that they don't have to worry about it. Some states tax far smaller amounts, so getting money out of the estate may save stae inheritance or estate taxes.

More important for most people is keeping the money out of reach of lawsuits. Since the money no longer belongs to you (you gave it to the trust) if someone were to sue you they could not go after that money. Since the trust beneficiaries do not own the money, it belongs to the trust, people who sue the beneficiaries also cannot get at the money.

If someone were to sue the trust they could get at the money. But the trust will rarely do anything that could generate lawsuits.

The income tax implications depend on the relative tax rates of the beneficiary and the trust. Even for beneficiaries for whom the tax rate would be lower than if the money stayed in trust, it may be better overall to keep it in trust. That would be the only way to keep the long term growth of the trust, with it's estate tax and creditor access advantages.

One can tax manage the trust with munis for bonds and low dividend stocks. The total trust taxable income could be quite low.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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