Trust for kids from grandparents: How should I handle it?

[Anonymous]

Use it to pay for college. That benefits everyone. Because instead of you and your DH putting money aside in a 529, you can check that box. Which means you now have more available cash to fund your own retirements one day.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So is the $1.5m all the money? And your mom has the pension and social security left? Anything else for her? I assume there is a paid-off house? I would make sure that she is taken care of as well. If she ends up needing nursing home care, that pension/social security may not be enough for her.

I would focus on having available to pay for college, and leave it at that. Full pay for private college would take the vast majority of what is there.

OP here.

Before funding the trust there is 2.5 million in investment accounts and IRAs. The trusts will total 1 million dollars.

She also has a paid off house.

No other major assets.

So $1m for four kids? So about $250k per kid in today's dollars? That will basically be college. Consider college paid for and leave it at that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You just have to remember that it isn’t your money and that no one is guaranteed an inheritance. Have you looked at the cost of college lately? If the trust will pay for college, then it will likely be used up on that and your kids won’t become spoiled trust fund kids. A few hundred thousand split four ways may not even pay for all four years. And if it’s a few hundred per kid, they’ll be able to pay for the undergrad and grad school of their choice and you won’t have to save for that. Looks like a win-win to me.

It's a few hundred per kid. So we are lucky. Thanks.

Yes, you are.

There is zero risk that they will become "rich trust fund kids."

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:You just have to remember that it isn’t your money and that no one is guaranteed an inheritance. Have you looked at the cost of college lately? If the trust will pay for college, then it will likely be used up on that and your kids won’t become spoiled trust fund kids. A few hundred thousand split four ways may not even pay for all four years. And if it’s a few hundred per kid, they’ll be able to pay for the undergrad and grad school of their choice and you won’t have to save for that. Looks like a win-win to me.

It's a few hundred per kid. So we are lucky. Thanks.

Yes, you are.

There is zero risk that they will become "rich trust fund kids."

Yea, that's "graduate without student loans" money, not "rich trust fund kid" money.

[Anonymous]

I think if one child would benefit from private high school, that would be good use of the money. Just make sure it all equals out in the end. If Child A gets it for high school, Child B gets an equal amount for college. Child A may not even go to high school depending on how "high functioning" he is.

Even if you spent half on school/camp/college and saved half for their 20s, that's still a nice windfall for a down payment on a house or grad school or a head start on retirement savings.

[Anonymous]

I laugh at everyone’s posts to OP that it’s not enough money to create trust fund kids. They’re right, of course. They’re also clearly jealous regardless.

[Anonymous]

1 million = 250 per kid. Max out college funds and save the rest for use when they are adults. They can use it for grad school, house downpayment, to start their own business, etc. Whatever happens, make sure each kid gets the same amount.

[Anonymous]

Anonymous wrote:I laugh at everyone’s posts to OP that it’s not enough money to create trust fund kids. They’re right, of course. They’re also clearly jealous regardless.

Wut?

You know this ... how?

[Anonymous]

Anonymous wrote:I laugh at everyone’s posts to OP that it’s not enough money to create trust fund kids. They’re right, of course. They’re also clearly jealous regardless.

Um, I'm one of those pp's. I'm not jealous, as I inherited a similar amount of money. That's why I understand that the numbers can seem large, but having been through it, I can say that it pays for college, but doesn't create a lifetime of leisure. It basically means you don't have to plan on just state school, or crossing your fingers and praying for financial aid. It gives you choices, but you'll still need a job after you graduate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here.

Sorry I was so confusing. It's a complicated situation.

Even reading and responding to these few posts has helped me clarify my thinking.

I really don't resent not inheriting at this point because I know the reason my sister and I didn't get it. And I get why my dad would have made this decision. I won't get into it here, but it's a good reason.

It is highly unusual for a person to leave money to children or grandchildren unless that person's spouse had predeceased him.

The normal course of business is for your mom to inherit the money, and to leave money to her children when she dies.

Actually, it's not unusual for those will plenty of assets to support the surviving spouse to establish a generation-skipping trust.

If the amount is several hundred thousand to be shared by 4 grandchildren, it's not really enough to fully fund college for all 4. The easiest thing to do would be to set up 529s for the kids. However, if you don't want to limit the use of the $$ to college/private school, a trust is the way to go. You can establish a trust that would turn the money over to the kids at a certain age (say 30, or portions at specified ages), with provisions that the trustee can distribute the funds prior to that. You can give the trustee full discretion, or you can specify that its for certain purposes -- education, house downpayment, etc.

pp here -- just saw that you clarified that it is a few hundred per kid. That may be (but might not be) more than the cost of college for the kids, so a trust probably is the best approach. If both sets of parents are reliable, I'd have the parents serve as trustees with full flexibility to use the funds to the benefit of the children. You can expect the trusts to throw off around $10,000-15,000 in income every year. That's plenty to fund camps, etc. Then use the principal for college, when the time comes. Then specify that the remainder gets distributed at a certain age.

Thank you. This is very useful. I think this is what we'll do.

Another clarification to offer is that three of the kids already have 529s my dad funded with around 100K in each and my youngest has one with just 15K. Fully funding my youngest's 529 is the first thing I want to do. My other kid is in early elementary so there's time for the money to grow.

The trust fund kid thing is really more of a mindset issue. I know that the $600K or so they will now have is not and will not grow to be enough to make them actually be trust fund kids. But kids have no concept of money and even 25 year olds often don't really have a concept of money or the future. (depends on the kid) and I don't want them to know about the funds and grow up without the drive or ambition that led their grandfather and me to be very careful with money. But ultimately, there's only so much that I can do to set them on a path towards financial common sense.

pp here -- I like the Warren Buffet approach -- give your kids enough money that they can do something, but not so much they can do nothing. I think the amount of money you're talking about falls into the former category. Enough to give your kids the ability to go to college and graduate without loans, and (depending on where they go to college) maybe a head start on a down payment for a house. That's a wonderful gift, but not enough to allow them to not work.

I know people who are the heirs to billions who work very hard, and I know people with small trust funds who blew through them and never really had a career. I think it has much more to do with the person they are than it does the money. At the appropriate time, I do believe that you should talk to them about the trust. I think you can educate them about principal and appreciation and give them perspective on how much money it is (or is not). We give our young son an allowance and have him save part of it, and we pay him interest on his savings, so he can see it grow. We let him make "large" purchases (a big Lego set, maybe?) Later, we'll get him a small brokerage account and let him make some investments. I think there's a greater danger that they blow it, if, after being convinced that they're part of a frugal, middle class family, they are given access to what seems like a huge sum of money at a young age and they don't have any perspective on it.