Putting Aside Money for Niece/Nephew

[eliza]

I am childless and don't anticipate that changing.  I have one sister and two cousins that are like sisters to me.
I'm super excited that my cousin is expecting what will be my first niece/nephew.  I'd like to start putting aside money for the baby when it is born and will want to do something similar for future nieces/nephews.   

I'm thinking of putting aside a decent chunk of money to start off the fund at birth ($1,000 perhaps) and then keep adding incrementally on a monthly basis.  I'd like to give the money to nieces/nephews when they are older, perhaps when the graduate high school or turn 18.  I'd like for them to be able to use the money on funding their dreams whether than is education or travel or whatever, so I don't want any restrictions.

Anyone have any suggestions on how to go about this and the implications of using an UTMA account versus a trust versus taxable accounts in my name and future gifts.  I'm in the pretty early stages of research, but thought folks here might have some good insights.

[MrsPete]

This is a great idea.  I have no ideas on specifically how you should go about this, but I do have a couple questions for you to ponder:

- Obviously I have no idea how many children your sister and two cousins will have, but it seems likely that you could have 3, 4, 5, or more nieces and nephews eventually.  I suggest that you "go easy" investing for the first child ... until you know how many children you're talking about.  I mean, it'd be a shame to invest $1000 + later installments for the first child, then realize that you can't "keep it up" for the younger children.  Once you feel your nieces and nephews have all arrived, you can always "catch everyone up" ... but it'd be a shame to find yourself unable to give the youngers what you gave the olders. 

- Or, will you just have one big account, which you intend to "share out" to the adult children at some point in the future? 

- Will you tell the parents and/or the children about this money you're putting aside?

- Will you give it to them all at once, or in installments?  At high school graduation?  Half then and half at age 25? 

- Will you put the money in the children's names, or will you keep it in your own name until you're ready to make the gift?  Personal opinion:  All other things being equal, keep it in your name.  If the children someday apply for college FAFSA aid, this would "count against them" if it's in their names.  Also -- God forbid -- one of these nieces/nephews reaches adulthood and has not shown responsibility, you'd have the option of holding the money back for a while.  I know, no one looks at a sweet little baby and expects anything other than good deeds, but some kids do go astray, and IF that were to happen, you might find yourself glad to have the money in your own control.

Congrats on your prospective aunthood!   

[rockstache]

+1 to everything Mrs Pete said. I ended up deciding to put everything in one investment account in my name, and I’m going to add them as beneficiaries as they are born. When I die, they all split it, OR I’ll give it to them as I see fit. It was the most flexible option.

[eliza]

MrsPete - Thank you so much!  So many important things to consider - some of which hadn't yet occurred to me. 

Rockstache - That's a pretty good option.  I also like the idea of keeping it as flexible as possible.

[Sailor Sam]

+1 to everything Mrs Pete said. I ended up deciding to put everything in one investment account in my name, and I知 going to add them as beneficiaries as they are born. When I die, they all split it, OR I値l give it to them as I see fit. It was the most flexible option.

This is what I did. I started with the first kid, and eventually my sister ended up having 4(!) kids. When the first kid is 18, I'll take the balance and divide by 4. That will be the sum each child gets. Whatever interest is left over once the last child is paid out, I'll donate to whatever charity the 4 collectively vote for.

Quick note about beneficiaries who are minors, you'll have to name an adult as their minor child trustor. I'm currently going through the process of getting my will together, and thought I'd throw the tip out there.

[frugalnacho]

I started a custodial UGMA account for my first niece.  I'm pretty sure I made a thread about it on here several years ago.  I opened it with schwab because they had low entry fees to buy index funds (I think it was only $100). 

For my other neices/nephews I just created a taxable brokerage account at vanguard in my name and I'm purchasing single shares of the vanguard total market fund ETFs.  I'll just keep adding it each year and pay the dividends on my own tax return (should be $0 for my foreseeable future).  When they are 18 I will gift them the account.

I regret opening the UGMA account for my niece, and am going to try to liquidate it* and repurchase the balance in a vanguard account in my name so it won't be counted against her for FAFSA. 

*My plan for liquidation will be to use it on some legit expense for her, like a summer camp, or something like that, then just reimburse her into my own taxable account.

[Roks]

+1 to everything Mrs Pete said. I ended up deciding to put everything in one investment account in my name, and I知 going to add them as beneficiaries as they are born. When I die, they all split it, OR I値l give it to them as I see fit. It was the most flexible option.

This is what I did. I started with the first kid, and eventually my sister ended up having 4(!) kids. When the first kid is 18, I'll take the balance and divide by 4. That will be the sum each child gets. Whatever interest is left over once the last child is paid out, I'll donate to whatever charity the 4 collectively vote for.

Quick note about beneficiaries who are minors, you'll have to name an adult as their minor child trustor. I'm currently going through the process of getting my will together, and thought I'd throw the tip out there.

When you divide the balance and sell/liquidate the holdings, you will be liable for capital gains tax, correct?

[Sailor Sam]

+1 to everything Mrs Pete said. I ended up deciding to put everything in one investment account in my name, and I知 going to add them as beneficiaries as they are born. When I die, they all split it, OR I値l give it to them as I see fit. It was the most flexible option.

This is what I did. I started with the first kid, and eventually my sister ended up having 4(!) kids. When the first kid is 18, I'll take the balance and divide by 4. That will be the sum each child gets. Whatever interest is left over once the last child is paid out, I'll donate to whatever charity the 4 collectively vote for.

Quick note about beneficiaries who are minors, you'll have to name an adult as their minor child trustor. I'm currently going through the process of getting my will together, and thought I'd throw the tip out there.

When you divide the balance and sell/liquidate the holdings, you will be liable for capital gains tax, correct?

Oh man, from 2017. Happy update, my sister had another kid, and I値l be dividing by 5. But yes, @Roks I will be paying the capital gains taxes when I sell.

[cool7hand]

There's more than one way to skin a cat. So here's another take.

We started putting money aside for our nieces and nephews on my wife's side in the form of college accounts over 20 years ago. Then we stopped about 14 years ago. We stopped because neither the kids nor my wife's siblings really got what we were doing. To us, we were modeling a responsible form of saving. To both my wife's siblings and nieces and nephews (because of their traditional consumer lifestyle), we were forcing our dogma down their throats. Neither parents nor children were interested in the benefits of delayed gratification. Whatever we were giving, they wanted it with the immediacy of traditional consumer culture.

So we stopped setting money aside. We did all of our giving contemporaneously. We bought for them what they wanted, even if the spending was contrary to what we thought best. We decided that we would have a closer connection to family this way. When possible, we spent our money on shared contemporaneous life experience. But sometimes we bought transient stuff for them that we'd never buy for ourselves because that was meeting them in their headspace.

Simultaneously, we shared with the nieces and nephews everything we could about our journey. Eventually they saw us FIRE in our late 40s. Perhaps it took us longer than some, but it seems like a miracle to the nieces and nephews because they'd never seen anyone else do what we've done. Now we help some of the nieces and nephews invest their own money. Others have followed traditional consumer culture. But we're here to help if they decide to do things differently.

Do what you think is best. But keep an open mind if it's not working the way you thought it would and another path might help you to stay close to everyone, while still demonstrating another way to approach financial responsibility.

[TheFrenchCat]

There's more than one way to skin a cat. So here's another take.

We started putting money aside for our nieces and nephews on my wife's side in the form of college accounts over 20 years ago. Then we stopped about 14 years ago. We stopped because neither the kids nor my wife's siblings really got what we were doing. To us, we were modeling a responsible form of saving. To both my wife's siblings and nieces and nephews (because of their traditional consumer lifestyle), we were forcing our dogma down their throats. Neither parents nor children were interested in the benefits of delayed gratification. Whatever we were giving, they wanted it with the immediacy of traditional consumer culture.

So we stopped setting money aside. We did all of our giving contemporaneously. We bought for them what they wanted, even if the spending was contrary to what we thought best. We decided that we would have a closer connection to family this way. When possible, we spent our money on shared contemporaneous life experience. But sometimes we bought transient stuff for them that we'd never buy for ourselves because that was meeting them in their headspace.

Simultaneously, we shared with the nieces and nephews everything we could about our journey. Eventually they saw us FIRE in our late 40s. Perhaps it took us longer than some, but it seems like a miracle to the nieces and nephews because they'd never seen anyone else do what we've done. Now we help some of the nieces and nephews invest their own money. Others have followed traditional consumer culture. But we're here to help if they decide to do things differently.

Do what you think is best. But keep an open mind if it's not working the way you thought it would and another path might help you to stay close to everyone, while still demonstrating another way to approach financial responsibility.

I'm glad you were able to maintain your relationship with your family, but I find it quite sad that they were getting mad at you for how you chose to give a gift.  I can't imagine trying to tell someone how to give me a gift.  But that's great that you moved past that and were able to be such a positive influence on your nieces and nephews. 

[cool7hand]

There's more than one way to skin a cat. So here's another take.

We started putting money aside for our nieces and nephews on my wife's side in the form of college accounts over 20 years ago. Then we stopped about 14 years ago. We stopped because neither the kids nor my wife's siblings really got what we were doing. To us, we were modeling a responsible form of saving. To both my wife's siblings and nieces and nephews (because of their traditional consumer lifestyle), we were forcing our dogma down their throats. Neither parents nor children were interested in the benefits of delayed gratification. Whatever we were giving, they wanted it with the immediacy of traditional consumer culture.

So we stopped setting money aside. We did all of our giving contemporaneously. We bought for them what they wanted, even if the spending was contrary to what we thought best. We decided that we would have a closer connection to family this way. When possible, we spent our money on shared contemporaneous life experience. But sometimes we bought transient stuff for them that we'd never buy for ourselves because that was meeting them in their headspace.

Simultaneously, we shared with the nieces and nephews everything we could about our journey. Eventually they saw us FIRE in our late 40s. Perhaps it took us longer than some, but it seems like a miracle to the nieces and nephews because they'd never seen anyone else do what we've done. Now we help some of the nieces and nephews invest their own money. Others have followed traditional consumer culture. But we're here to help if they decide to do things differently.

Do what you think is best. But keep an open mind if it's not working the way you thought it would and another path might help you to stay close to everyone, while still demonstrating another way to approach financial responsibility.

I'm glad you were able to maintain your relationship with your family, but I find it quite sad that they were getting mad at you for how you chose to give a gift.  I can't imagine trying to tell someone how to give me a gift.  But that's great that you moved past that and were able to be such a positive influence on your nieces and nephews.

No one got mad. I'm sorry if that is the impression I gave. But our gifts did not connect. So we found ways to give gifts that did connect.

None of us can control other people's reactions. So we controlled our own.

[Roks]

Great, thanks!

[Ecky]

I would not do this, personally. For most people (especially young people), a gift of money is one of the worst things that can happen to them.

Freedom is a mindset, and can be achieved at any income level. Living paycheck to paycheck can (and does) also happen at every income level. A gift does not teach a man to fish.