Author Topic: How to help FIL invest for grandkids  (Read 604 times)

Freedom2016

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How to help FIL invest for grandkids
« on: December 18, 2018, 08:30:15 AM »
My in-laws are trying to decide how best to set aside/protect an inheritance for each of their 4 grandkids (two are ours). Their goal: for each GK to inherit $100k when they turn 21.

They don't want to do a 529 because that limits the use of the funds. They apparently are looking for some kind of investment vehicle that they could put X amount of money in, and let grow over a period of years.

They spoke to one of their advisers at Horace Mann who pitched some kind of insurance product to them. It sounded like some kind of whole life policy that would be taken out on the CHILDREN; I'm not quite sure of the details, but all my alarm bells were going off and I told FIL that he should definitely NOT go in that direction. I said I would do some research.

It seems to me that they could/should set up some kind of trust for each kid that they get to control once they turn 21, and within the trust, put money into VTSAX and just let it grow.

But I am no expert on trusts and it's very possible that I don't know what I don't know when it comes to setting up inheritances. So - MMMers - suggestions for my FIL?

PS - Personally I think they should access the money at 30, but I don't feel like it's my place to tell them what to do with their money. I will do my damnest to teach my kids financial responsibility so that whenever they gain access to that money they will mostly want to let it keep compounding. :)

oldmannickels

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Re: How to help FIL invest for grandkids
« Reply #1 on: December 18, 2018, 09:45:12 AM »
When I was around 6 or 7 my grandparents gifted me and my sister some shares of a single stock in an UTMA. The UTMA was in my name with my mom as a custodian, I think the grandparents could be custodians. Then they also taught me how to check the stocks in the newspaper and would call and ask how they were doing. Was a great experience. There are a bunch of fancy ways to do it, but this is the easiest. Just look out for kiddie tax, but shouldn't be a problem with VTSAX and the amount you are talking about.

Freedom2016

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Re: How to help FIL invest for grandkids
« Reply #2 on: December 19, 2018, 04:46:54 AM »
Thanks! I had to look up a UTMA. Looks promising, though I'm having trouble understanding the kiddie tax. If my in-laws have a lower tax rate than we do, wouldn't they be better off from a tax perspective growing their investments for the grandkids and then gifting them each 100k (less taxes, maybe) on their 21st bday?


oldmannickels

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Re: How to help FIL invest for grandkids
« Reply #3 on: December 19, 2018, 01:23:16 PM »
It's hard to say without a lot of details.

Generally, VTSAX has a distribution rate less than 2%, so less than the $2,100 unearned income threshold per kid at the $100k goal. But don't know what other income they might have at that point.

reeshau

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Re: How to help FIL invest for grandkids
« Reply #4 on: December 19, 2018, 01:29:01 PM »
Unless your FIL is afraid something will happen to the money, there is no need to earmark it now.  The trust could be created at the time of his death, designated in his will.  Then, if the grandkids are 21, they are just heirs.  That will save on the maintenance costs and paperwork of the trust in the meantime.