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Old 07-29-2021, 07:47 AM   #1
mmoses
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Default Investments and Estate Planning for Kids

I know talk to a lawyer. I plan to just like to do a little research beforehand.

Im far from rich but I want to set my kids up for success and with how things are going they are going to be way behind the curve if my wife and I are not proactive. Putting money in a saving account does not work anymore.

I have three kids Oldest is 6. They all have 529s for college set up.

I want to set up some sort of investment accounts to help them in the future.

1. I don't want them to know about it until they are eligible to control/withdraw it.
2. I would prefer that age to be 25.

Any financial planners or lawyers that could help with that?

In addition, I need to get a will and a revocable living trust


Thanks,
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Old 07-29-2021, 07:53 AM   #2
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Great thread...tagged


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Old 07-29-2021, 08:07 AM   #3
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I'd say the simplest thing would be index fund in S&P 500, similar to your 529s.

But, make sure you are funding your retirement accounts before doing so. Compound that interest!
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Old 07-29-2021, 09:12 AM   #4
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Originally Posted by bbqfan5909 View Post
I'd say the simplest thing would be index fund in S&P 500, similar to your 529s.

But, make sure you are funding your retirement accounts before doing so. Compound that interest!
Pension, 401k, and 457 are set up for my wife and I.
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Old 07-29-2021, 09:37 AM   #5
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Roth IRA for each kid is the best investment besides 529
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Old 07-29-2021, 09:54 AM   #6
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Roth IRA for each kid is the best investment besides 529
Dont they need earned income for that?

Unfortunately, I cant hire them out yet.
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Old 07-29-2021, 10:02 AM   #7
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Just open a custodial UTMA account. No real need for a lawyer.
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Old 07-29-2021, 10:05 AM   #8
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If you want them to have control and access to invest and maybe spend some of the money as they choose at age 25 (or any other age after 21), you basically have two options. 1) Set up a trust for each child to hold assets between now and whatever age you want to turn it over to them; or 2) Set up a separate account in your name (your joint name with you and your wife) that are earmarked for each child, and then gift them the money whenever you're ready to turn it over to them.

Option 1 is more complicated and would involve some legal fees in setting it up. It probably wouldn't be worth the hassle and expense unless each trust was going to hold fairly significant assets. And then you'd need to do some work with your CPA and financial advisor to minimize income taxes in each trust, as it doesn't take much income for a trust to hit the higher tax brackets.

Option 2 would be simpler and cheaper to set up, but it could potentially get into some required tax reporting or even tax owed on the amounts eventually gifted to the kids at age 25 (or whenever you give them the money), depending on the amount you ultimately give them.

All of the above applies to a goal of the child having access to potentially spend some/all of that money after age 21 but before age 59 1/2. Maybe you want them to have money to start a business or buy a house or whatever....

If you want to set them up with a retirement account that they wouldn't spend until AFTER age 59 1/2, then a Roth IRA would be great. They do have to have earned income before they can contribute to a Roth though. And you wouldn't be able to maintain control of the money after the child turns 18.

You can put money into a custodial account for a child, but once they turn 21 (UTMA) or 18 (UGMA), the adult custodian's name comes off the account, and the child controls it. Money from those accounts can be withdrawn at any age without penalty. They generate 1099s each year for the taxable income. There are some tax breaks for small income amounts earned by children, but they're not completely tax free.

As always, the right answer to your question is talk to your financial advisor and CPA about your specific situation and goal and then maybe your attorney as well, if you think a trust is the best route to go for your situation.
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Old 07-29-2021, 10:11 AM   #9
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We went the trust route as part of a overall family plan that included wills, power(s) of attorney, estate planning, custodial agreements, etc...

I highly recommend working with an attorney that specializes in this area. I learned a great deal about trusts, probate, asset protection, etc.. all as part of this process.
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Old 07-29-2021, 10:12 AM   #10
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Quote:
Originally Posted by mmoses View Post
Dont they need earned income for that?

Unfortunately, I cant hire them out yet.
They do need earned income, but it doesn't have to be W-2 income. Pretty easy to show $6k of earned income for a kid.
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Old 07-29-2021, 10:14 AM   #11
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I personally don't like the idea of turning over large sums of money today for kids to access and control at future date. I rather make that decision at the time. Who knows what situation your child will be in in 20 years and if that money will become a blessing or a curse to them.
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Old 07-29-2021, 10:23 AM   #12
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Originally Posted by Throwin Darts View Post
I personally don't like the idea of turning over large sums of money today for kids to access and control at future date. I rather make that decision at the time. Who knows what situation your child will be in in 20 years and if that money will become a blessing or a curse to them.
I kinda agree. One of the reasons I don't want them to know about it and at a later date than 21.

It won't be millions for sure but hopefully enough for a down payment for a house or something.
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Old 07-29-2021, 10:29 AM   #13
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I'm in the same boat with my son about to turn 2. Just have a hard time with the thought of kicking a large chunk of money to them at 18 to do whatever they want.
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Old 07-29-2021, 10:33 AM   #14
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Originally Posted by SNKETR View Post
I'm in the same boat with my son about to turn 2. Just have a hard time with the thought of kicking a large chunk of money to them at 18 to do whatever they want.
Trusts offer up a great deal of "protection" in this area. You can set an array of parameters including age, marital status, criminal background, employment status, etc.... A trustee will administer the requirements of the trust.

Just a word of advice, more is not always better when it comes to stipulations and requirements in trusts.
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Old 07-29-2021, 10:36 AM   #15
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I struggled with the correct route as you are for the very same reasons. Ultimately I went with option 2 as Shane listed above. I know I will have some capital gains taxes when the time comes to hand it over, but I like the flexibility of keeping it in my name until I can see what the future holds for my children and gift it at the right time. My main concern was getting that compound interest working ASAP.
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Old 07-29-2021, 10:38 AM   #16
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Just open some funds for yourself and leave to the kids in your will. Easy peasy.
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Old 07-29-2021, 10:42 AM   #17
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I would really like to get the ball rolling on something for my kids kiddos. Something small started now could be huge after 50yrs compounded. Wish someone before my day would have thought of that. Could have saved alot of time and money in my 20s paying off student loans and other college debt.
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Old 07-29-2021, 10:44 AM   #18
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Quote:
Originally Posted by mmoses View Post
I kinda agree. One of the reasons I don't want them to know about it and at a later date than 21.

It won't be millions for sure but hopefully enough for a down payment for a house or something.
Why not just house the money under your own personal accounts so you always have control on timing & amount to hand off for said occasions…house down payment, etc…
Pretty simple to self invest without all the hassle of attorney fees
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Old 07-29-2021, 11:02 AM   #19
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Any well thought out plan of your estate for the ease of your passing for your children isn't really too difficult to plan out. You can even involve your kids in the process.

Just keep this in mind. There is about a 99.9% chance of them going to war after you pass if someone feels they got wronged.

Do what you think is best for them and sign the will.
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Old 07-29-2021, 11:11 AM   #20
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Then why not keep total control and gift the money you see fit?



Quote:
Originally Posted by mmoses View Post
I kinda agree. One of the reasons I don't want them to know about it and at a later date than 21.

It won't be millions for sure but hopefully enough for a down payment for a house or something.
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Old 07-29-2021, 11:13 AM   #21
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Originally Posted by STGS View Post
They do need earned income, but it doesn't have to be W-2 income. Pretty easy to show $6k of earned income for a kid.
I am by no means an expert but I believe this is correct. I have been told you can "pay" your kids up to 10k which reduces your taxable income and they dont have to pay income tax on the 10k either. I got lost in the reason why but I have had multiple folks tell me this that is in the know.
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Old 07-29-2021, 11:18 AM   #22
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They do need earned income, but it doesn't have to be W-2 income. Pretty easy to show $6k of earned income for a kid.
Yep, "hire" your kids.

Trusts can be a great vehicle, but you have to select your trustee wisely. Uncle Joe may seem trustworthy but once he's in control of your money things may change. Banks appear to be a good idea but good luck ever getting them to cede control once they have it. Everyone hates lawyers but it's a whole lot cheaper to get these things set up the right way than trying to fix it down the road.
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Old 07-29-2021, 12:04 PM   #23
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Quote:
Originally Posted by Walker View Post
Just open some funds for yourself and leave to the kids in your will. Easy peasy.
Hopefully I am alive when this money is useful to them.
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Old 07-29-2021, 12:06 PM   #24
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Quote:
Originally Posted by bbqfan5909 View Post
Then why not keep total control and gift the money you see fit?
Quote:
Originally Posted by HogHunter34 View Post
Why not just house the money under your own personal accounts so you always have control on timing & amount to hand off for said occasions…house down payment, etc…
Pretty simple to self invest without all the hassle of attorney fees

My understanding is that you are limited to the amount you can give them a year. I think its $15k before they have to pay taxes.
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Old 07-29-2021, 12:07 PM   #25
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Very good advise on this thread. I can only add a little.
* UTMA/UTMA accounts don't automatically revert to the kids at the age of the majority for the child. You will have to do separate actions for the child to take over the account. One of my clients has two UTMA's for her sons, 40 & 42. And the company will allow the 'kids' to remove their names form the account. However, the client has been carrying the tax burden.
* Not sure if you have any extended family, but you must have POAs. Power of attorney for financial & health care.
* Get a will and decide who you want to raise your kids in the event that you and your spouse are incapacitated or worse.
* Get a 30 year term life insurance, it's cheap.
* Attorney services may be offered by your employer. Our company uses ARAG, and it costs me $15/month. With that I have access to lawyers for many different services. Some are free others are discounted. We used the service for Wills and POAs, in-person service, $0 additional cost. Otherwise, contact several lawyers and ask what they charge. You should be able to get Wills and POAs for $300-$1000. I would not pay more. Now the trust alone may cost $1000 on the low side.
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Old 07-29-2021, 12:07 PM   #26
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Quote:
Originally Posted by Shane View Post
If you want them to have control and access to invest and maybe spend some of the money as they choose at age 25 (or any other age after 21), you basically have two options. 1) Set up a trust for each child to hold assets between now and whatever age you want to turn it over to them; or 2) Set up a separate account in your name (your joint name with you and your wife) that are earmarked for each child, and then gift them the money whenever you're ready to turn it over to them.

Option 1 is more complicated and would involve some legal fees in setting it up. It probably wouldn't be worth the hassle and expense unless each trust was going to hold fairly significant assets. And then you'd need to do some work with your CPA and financial advisor to minimize income taxes in each trust, as it doesn't take much income for a trust to hit the higher tax brackets.

Option 2 would be simpler and cheaper to set up, but it could potentially get into some required tax reporting or even tax owed on the amounts eventually gifted to the kids at age 25 (or whenever you give them the money), depending on the amount you ultimately give them.

All of the above applies to a goal of the child having access to potentially spend some/all of that money after age 21 but before age 59 1/2. Maybe you want them to have money to start a business or buy a house or whatever....

If you want to set them up with a retirement account that they wouldn't spend until AFTER age 59 1/2, then a Roth IRA would be great. They do have to have earned income before they can contribute to a Roth though. And you wouldn't be able to maintain control of the money after the child turns 18.

You can put money into a custodial account for a child, but once they turn 21 (UTMA) or 18 (UGMA), the adult custodian's name comes off the account, and the child controls it. Money from those accounts can be withdrawn at any age without penalty. They generate 1099s each year for the taxable income. There are some tax breaks for small income amounts earned by children, but they're not completely tax free.

As always, the right answer to your question is talk to your financial advisor and CPA about your specific situation and goal and then maybe your attorney as well, if you think a trust is the best route to go for your situation.
This is great Thank you, UTMA or UGMA seems like the easiest way to do this.
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Old 07-29-2021, 12:14 PM   #27
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Quote:
Originally Posted by SaintBlaise View Post
Very good advise on this thread. I can only add a little.
* UTMA/UTMA accounts don't automatically revert to the kids at the age of the majority for the child. You will have to do separate actions for the child to take over the account. One of my clients has two UTMA's for her sons, 40 & 42. And the company will allow the 'kids' to remove their names form the account. However, the client has been carrying the tax burden.
* Not sure if you have any extended family, but you must have POAs. Power of attorney for financial & health care.
* Get a will and decide who you want to raise your kids in the event that you and your spouse are incapacitated or worse.
* Get a 30 year term life insurance, it's cheap.
* Attorney services may be offered by your employer. Our company uses ARAG, and it costs me $15/month. With that I have access to lawyers for many different services. Some are free others are discounted. We used the service for Wills and POAs, in-person service, $0 additional cost. Otherwise, contact several lawyers and ask what they charge. You should be able to get Wills and POAs for $300-$1000. I would not pay more. Now the trust alone may cost $1000 on the low side.
Thank you!
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Old 07-29-2021, 12:51 PM   #28
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Quote:
Originally Posted by jaspermac View Post
Just open a custodial UTMA account. No real need for a lawyer.
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Old 07-29-2021, 07:44 PM   #29
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I have a very good friend who is an estate planning attorney in Ft. Worth. Shoot me an IM if you want his contact. I'm sure he will talk to you about your situation and help you determine if you need an attorney or not to accomplish what you want (before he engages in a fee based relationship)
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Old 07-29-2021, 08:38 PM   #30
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I need to read this when I have time, tagged for later.
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Old 08-09-2021, 11:08 AM   #31
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Quote:
Originally Posted by helibow View Post
I have a very good friend who is an estate planning attorney in Ft. Worth. Shoot me an IM if you want his contact. I'm sure he will talk to you about your situation and help you determine if you need an attorney or not to accomplish what you want (before he engages in a fee based relationship)
pm sent.
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Old 08-09-2021, 12:12 PM   #32
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I got a really dumb/novice question. Does anyone stash cash on the side in order to also cover all the tax burdens the kids may be faced with?
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Old 08-09-2021, 12:20 PM   #33
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Just finalized with lawyers this week a trust for my sisters two girls. It was a commitment I made to my brother in law two years on his death bed with my sister in the room. The trust option allows us to set the date they can control their trust, but leaves it in a trust, protects it from marriage (divorce) , sets up dependents, how it passes upon death, allows my sister to incremental fund, etc... NOTE: This included life insurance proceeds, so we aren't talking chump change, so everyone's deal is different.....just worked well for what we are trying to accomplish.
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Old 08-09-2021, 12:43 PM   #34
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I strongly suggest that you reconsider. I suggest that you spend the time and effort to equip your children with the tools needed to make it on their own. That will benefit them far more than leaving easy money to them later.
I am 70 and my youngest is 37. In my years I have seen many people receive "free" money, only for it to be wasted. The best way to see them handle it responsibly if they make it themselves.
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Old 08-09-2021, 12:49 PM   #35
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As far as taxes, My wife and I set up a revocable trust that owns everything except for retirement money. I just finished getting the deeds rewritten to reflect that the trust owns the properties.
When we pass, the properties remain in the trust's name and won't be seen as income to them unless they transfer into their name. Of course, they will have to pay real estate taxes, etc. (but the bank accounts are in the trust's name also).
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Old 08-09-2021, 01:09 PM   #36
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Quote:
Originally Posted by El Paisano View Post
I strongly suggest that you reconsider. I suggest that you spend the time and effort to equip your children with the tools needed to make it on their own. That will benefit them far more than leaving easy money to them later.
I am 70 and my youngest is 37. In my years I have seen many people receive "free" money, only for it to be wasted. The best way to see them handle it responsibly if they make it themselves.
100% I plan on doing my best to equip my kids with the tools they need to be hardworking, good, honest, and respectful adults.

However, I do want to give them the best advantage possible. I want them to be able to enjoy their lives. I realize after having kids, that I want to be to spend as much time with them as possible and God willing being able to retire quickly so I can spend as much time with my future grandkids as possible.

I hope I'm wrong but unfortunately I think the American dream is dying.
In the last year, we have seen a giant change in the wealth gap.

When you were born, $100k was equal to about $1.2 million in today's dollars. A Ford F1 would put you back less than $2k. Salaries have not increased enough to cover that 70 years of inflation.

I think my wife and I can raise good men and women and give them a headstart on life financially.
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Old 08-09-2021, 01:40 PM   #37
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I hope my kids don't see this thread.

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Old 08-10-2021, 06:09 AM   #38
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Why not open an account in your name and set it up with a "Payable on Death" to your child?
You have all the control while you are alive to use or give to whoever. Why you die, they get it. NO PROBATE

The trustee can get paid something so be sure that is allowed for.
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Old 08-10-2021, 08:12 AM   #39
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When my wife and I did ours two things that where big deals to us. Spousal trusts and for the kids we set up basically two trusts. one funds school etc if we die tomorrow with capped withdrawals to 18. Then there is three big payouts 24, 34, 44 years.
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Old 08-10-2021, 08:34 AM   #40
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Quote:
Originally Posted by mmoses View Post
100% I plan on doing my best to equip my kids with the tools they need to be hardworking, good, honest, and respectful adults.

However, I do want to give them the best advantage possible. I want them to be able to enjoy their lives. I realize after having kids, that I want to be to spend as much time with them as possible and God willing being able to retire quickly so I can spend as much time with my future grandkids as possible.

I hope I'm wrong but unfortunately I think the American dream is dying.
In the last year, we have seen a giant change in the wealth gap.

When you were born, $100k was equal to about $1.2 million in today's dollars. A Ford F1 would put you back less than $2k. Salaries have not increased enough to cover that 70 years of inflation.

I think my wife and I can raise good men and women and give them a headstart on life financially.
You and your family are going to be fine. By things you are stating and doing here y’all are on the right track. Now it’s allot of work as you know, but it’s a blessing to see when your kids are an asset to society and can stand on their own.
Lots of good information here already. Good luck on your journey through life.
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Old 08-10-2021, 09:33 AM   #41
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We’re doing the option 2. Post-tax regular investment account in my and my wife’s names strictly to capture the advantage of compounding interest/growth. Each account number is assigned to one child in our will, so we will hang on to it and hand it over to them when they need it, when they’ve earned it, or maybe just surprise them with it when the estate is handled upon our deaths.
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Old 08-10-2021, 11:20 AM   #42
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Quote:
Originally Posted by mmoses View Post
My understanding is that you are limited to the amount you can give them a year. I think its $15k before they have to pay taxes.
You can go over tax free but you have to fill out a form up to the lifetime tax free gift amount of ~11 million per kid.
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Old 08-10-2021, 11:25 AM   #43
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Quote:
Originally Posted by mmoses View Post
Pension, 401k, and 457 are set up for my wife and I.

Is the 457 a Roth or pre-tax?
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Old 08-10-2021, 11:30 AM   #44
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Quote:
Originally Posted by scott123456789 View Post
Is the 457 a Roth or pre-tax?
Roth.
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Old 08-10-2021, 09:14 PM   #45
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Good ideas above. Between now and then you should also be teaching them the value of money and how to be wise with generational wealth.
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Old 08-11-2021, 08:19 AM   #46
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We have 2 children, and the route we took was to put $18,000 into an index fund for each child. However these funds do, is what they will be given when my wife and I decide in the future, 18-25 age range. We opted to not set up a school fund. Secondly each child has a house that will be given to them when they move out of the house. Everything for now is in my wife and I names, with an ear tag as to what child has what account.

We are 36 yrs old, so we definitely need to set up a will sooner than later.


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Old 08-11-2021, 08:43 AM   #47
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Sounds like we need a TBH Will/Trust Sponsor!
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