Gifting money to a relative. Best way to lock the money up for a few decades and let it grow?

Is there an inexpensive way to gift money to a relative and have the money sit in an investment account growing in an index fund for at least 30 years?

I would just create an account on my own and have it willed but it seems better to just do a one time account creation in the relative’s name and let it be and have them receive the proceeds decades from now.

I believe trusts incur costs. I think Ric Edelman came up with some kind of trust that has a one-time fee and would let the funds grow for decades but I am noot sure if that is the best available.

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If you put the account in their name…how would you prevent them from draining it ?

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That is the thing. I would want it to go into some locked account that they could only access after age 40 or something. I don’t think there is an inexpensive way to do that. I want to gift them some money but I know it will be spent by the parents or grandparent in no time possibly. I may have to resign to just ear marking it as an inheritance from me but I am way older than them and the money probably won’t stay invested that many years then before they get it…

My knowledge is limited to my personal experience. You could get upfront estimates from trust attorneys of the legal fees for setting up the trust. It is common for a trust to be set up with the assets to be distributed when the beneficiary reaches a specified age. If you select a corporate trustee to carry out your wishes than there are additional annual fees maybe in the range of 1-1.5%. There is also the option to select a (very) trusted family member or friend who has sufficient financial acumen to be the trustee.

Why not just open an acccount in your name, fund it and set it up with the person you want to inherit it as the sole benficiary.

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How old is this person?

Give them a gold coin or several when they reach maturity!

Name these people in your will with a specific dollar amount. Stipulate upon your passing a trust be set up in each persons name and the funds are only available to that named person upon reaching the age of 40. Have an attorney draw this up. May cost you a couple thousand dollars but you aren’t setting up any trusts until after your passing and those can be set up with money from your estate. You won’t need this money because you will be, well, dead.

I heard of a bequest that would not be delivered until the recipient had a net worth of a specific amount.

If it was only that simple. Gold coins can get lost, stolen, sold for 70 cents on the dollar by desperation, etc…

The dollar amount I want to earmark is not enough to involve lawyers and their fees. I could just will the invested money to the relatives.

Guess I was dreaming of some kind of generational wealth initiation thing. Money left in the S&P 500 for 50 years could do really well or maybe not. My niece is doing OK. This money would be for her newborn and toddler. Her mother, my sister, would spend the money in a second if I let her have access to it. I kind of don’t need the money right now and the money is actually a tiny windfall from an inheritance that was in limbo for a long time. I’d rather see it just sit undisturbed in a growth vehicle and be a nice gift decades from now for family members who may or may not have a decent life ahead of themselves.

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What about setting up a couple of 529 plans ? That would lock it up for almost 2 decades and keep your sister’s hands away from it. Then it could convert to Roth IRA for them if it doesn’t get used for college.

As @AustinBond suggested, a 529 is an excellent option. One other option is to set up custodial accounts in the children’s name-called a UTMA or a UGMA. There are no set up fees. You could name your niece as custodian. Depending on the state, the children would acquire the assets at ages 18 or 21. The main risks is that the recepient does not make good decisions at that age on how to use the funds. Note also that the funds can make the recipient less eligible for a need-based college scholarship.

Okay, here are the requirements that you have listed so far:

  1. Cheap and simple to set up,
  2. Not available to be spent by other relatives,
  3. Keeps growing in a stock index fund for decades,
  4. Accessible to your niece when she is mature enough to manage the money. (You will have to trust that she does reach that point. You can help by teaching her how to manage her finances while she is young. Many young people never have that teaching, so their money management skills are nil. Teach her how to save and invest and she will never go hungry. She will be taught how to spend by all the people trying to get her money, so you don’t have to worry about that part!

Some solutions, which depend on the situation, on your niece’s ability and knowledge, and also on your investment knowledge:

A. The easiest is to open a joint investment account with a mutual fund company, such as Fidelity, Vanguard, or Schwab. Put the ownership in your name AND your niece’s name. You will control it and manage it as long as possible. Then she takes over, and with the skills you have taught her, manage it until she is 40 years old, per your suggestion. OR

B. Help you niece to open a Roth IRA account in here name. Encourage her to work and put money into the account. If she can’t afford put her total earnings into the Roth, then make gifts to her each year, up to her earnings total or $7000 maximum for 2024. The IRS doesn’t care which money goes into the Roth as long as it does not exceed her total earnings (not her net take-home money), OR

C. Hire an estate attorney to set up a trust fund for your niece. Instruct him on how you want your gift put into a good low-cost stock index fund. Then decide at what age you want to allow your niece to start making withdrawals from the trust fund. Plan to pay the estate attorney an annual fee for his services to maintain the trust fund. If the trust fund is large enough initially, probably the annual attorney fee can be paid by some of the trust fund stock dividends and capital gain distributions each year.

@AustinBonds. There is an interesting post today from Jim Dahle aka the White Coat Investor on his plan for how his children will get a inheritance. He covers many of the suggestions that have been made in this thread. “1. Give my children Financial Knowledge. 2. Contribute to Their 529 College Funds. 3. Invest in a UTMA/UGMA for Their “20s Fund”. 4. Parent Match” Roth IRA Retirement Fund. Bonus Trust Fund”
For the post search for the White Coat Investor my children’s Inheritance