Stop Putting Your Children’s Money into Savings: The Power of a Minor’s Trust

Lindsay M. Harris, JD
Minor's Trust

Putting your child’s money or gifts into a savings account is LOSING them money. Money that could be used for college, trade school, their first car, a down payment on a house, or even retirement. Not only do these accounts lose money, they have ZERO protection. Is your child ready to have access to the account at 18? Will they spend the money wisely? What are your options?

Meet Curt and Dana. Curt and Dana have 2 kids and like many families they set up a savings account for each kid. They deposited their children’s birthday money and Christmas money into these accounts after letting them pick out a small toy here and there. Some months they had a few extra dollars to put into their children’s savings accounts in hopes it would create a small nest egg for their future. When their oldest turned 18, he had $7,250 in his account (equating to a little more than $1 a day). On his 18th birthday, their son decided to buy a new stereo for his car and go celebrate with his friends. He didn’t intend to spend all of the money, but he felt “rich”. The money was gone in 3 months. Legally, Curt and Dana were powerless. They tried begging, asking, and pleading with their son to use the money wisely, but he was 18 and legally the money was his.

Meet Alex and Jena. Alex and Jena have 2 kids as well. Alex and Jena set up a simple minor’s trust for their children to hold investment assets, knowing the power of compound interest. Alex and Jena invested all of their children’s birthday money, Christmas money, and any extra funds they had in their children’s minor’s trust, which owned an investment account. At 18, their oldest daughter, Sophie, had $73,000 in her account to use for college expenses or a down payment on her first home (equating to about $5 a day with an 8% return). Alex and Jena also retained control of the account after Sophie turned 18 to help ensure that Sophie used the money wisely. With the Minor’s Trust, Alex and Jena got to make the rules and set the distribution parameters. They were able to protect the funds and grow them! Sophie decided not to go to college and instead obtained a job as a merchandiser after high school. Alex and Jena kept the money in the Minor’s Trust to help ensure Sophie would be able to retire one day. When Sophie turned 65, she had $4 million in her trust.

Advantages of a Minor’s Trust over UTMA accounts (Savings Account) or 529 Plans?

  • More Control –You get to decide how the money is spent and the parameters for distribution.
  • No Penalty – Money in a 529 Plan that is not used for college incurs a 10% penalty! At 15 months old, you don’t always know who your children will grow up to be.
  • More Flexibility – Life changes and circumstances change. You can’t change your mind once you put money into a 529 Plan.
  • Creditor Protection –You saved your child’s assets for them, not for your ex-spouse (or theirs).
  • No Outright Distribution—unlike UTMA accounts, the child does not have any “right” to the money at 18 years old. You get to decide if and when your child is ready to be in charge of their trust fund.
  • Easy to Administer—Trusts sound complicated, but this one is as easy to run as your checking or savings account.

Trusts are for Everyone! Minor’s Trusts are great tools to hold assets for a child or grandchild while protecting the money and increasing the value exponentially. It’s a win-win. If you think a Minor’s Trust is the right fit for a little one in your family, give us a call today to schedule your no cost initial meeting with our Estate Planning Team. 605-777-1772. We do Trusts.

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