Years and years ago, I came to the realization I disliked how much The Wife and I were spending on absolute shit that my nieces and nephews literally won’t care about come the following Christmas or birthday. That’s when I came up with helping my nieces and nephews accumulate some assets of their own using gifts I would otherwise give them.
At the beginning of this idea, The Wife didn’t want my plan to be forced. So every Christmas and birthday we would give the sibling a choice – a small little gift and I deposit money into their child’s investment account (outlined below), or a larger material gift. My sibling was much more into the idea of accumulating assets so he always opted for the smaller gift (I think he also had very little interest in all the stuff in his house). My Sister-in-Law on the other hand kept opting for stuff. At this point, we have more or less taken that choice away from her.
Ownership of Family Gifts
I live in the trust and estates world, I am very familiar with the ins and outs of setting up of a trust, however, we aren’t talking about the numbers that would justify setting up a trust ($50 to $100 per occasion). At the same time, I wasn’t comfortable with setting up an UGMA or UTMA.
An UTMA,
allows a minor to receive gifts—such as money, patents, royalties, real estate, and fine art—without the aid of a guardian or trustee. A UTMA account allows the gift giver or an appointed custodian to manage the minor’s account until the latter is of age. UTMA also shields the minor from tax consequences on the gifts, up to a specified value.
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It allows minors to receive gifts and avoid tax consequences until they become of legal age for the state, which is typically age 18 or 21
While it can be an investment account or a cash account, it is the last line that I have a real problem with. Eighteen and Twenty-one year old’s usually make terrible decisions, and I am not comfortable being up against one when they decide to use their money in a shitty way. So, when each gets older, they’ll find out how much Uncle and Aunt have saved for them over the years and they can use it in anyway they want to (with mine or their parents’ decision).
The trade off is that I am going to be paying the taxes on the accounts for the next decade or two. At first the tax issue bothered me, so I had a bunch of their money invested in muni bond funds, but after about a year or two I came to the conclusion that the money we are talking about it just didn’t matter, and it was at that point I put them into equities and broad market ETFs.
I can’t share any information about the accounts but given that it is Christmas today, it made me think about this topic.