The Wealth Creation Trust: A Childhood Gift That Keeps On Giving

The perfect gift for your child or grandchild on the occasion of their birth (or Bar or Bat Mitzvah, Sweet-16 , Quinceañera) cannot be found in a store.

Instead, supporting the future hopes and wishes you have for your child (or grandchild) comes by giving security, resources, and love…in the form of a Wealth Creation Trust.

When welcoming a new child into the family (or when celebrating a threshold birthday, a graduation, or other milestone event), it is not uncommon for (grand)parents to want to give the child a monetary gift.

In most cases, the giver writes a check, payable to the child’s parents, or maybe to the child directly…and the money gets deposited into a custodial account at the bank.  This is a mistake.

There are several common, problematic outcomes for this type of gifting:

1. Often, the child’s parents just cash the check, commingle the funds into the family accounts, and the child never gets to see the benefit (you’d be surprised about how often this happens); the gift has been squandered;

2. Or the money is deposited into a custodial account, which the child accesses at age 18 (or perhaps 21), perhaps to buy a car, fund a backpacking trip, or even buy a house; the decision about how to utilize the money is made without thought or foresight for the future; the gift has been effectively squandered;

3. Or maybe, the money is used to pay for college, counting against the child for purposes of financial aid, and the college degree doesn’t end up amounting to much in the long run; also – arguably – an effective squandering of the gift;

4.  And it could be that the money is instead used by the child after he or she is married, commingled with the assets of a spouse…and potentially distributed in a divorce; this gift was just plain squandered.

But, there is a far better way.  It is good for those of your family who want to make gifts; it is good for you as the doting and future-focused parents of a minor child; and it is good for your child.  Played right, it may even add some benefit on a larger scale for your future generations.  How?

Establish a Wealth Creation Trust for your child (or grandchild) as a birthday (or birth) gift, and then let everyone in your family know that all gifts for the child should be made payble to the Trustee of the [Name of Child} Wealth Creation Trust.

Then, when your child gets to be a certain age (that you have specified in the Trust), he or she can step into the role of Co-Trustee of the Trust, learning how to operate the trust responsibly and best utilize the funds in it.

He or she will be trained on the best types of investment for the Trust (such as self-care, well-being programs, entrepreneurial training, support for one or more entrepreneurial ventures that the child is involved in…, all of which have the possibility of doing a lot of good in the world and earning a healthy return on investment in the form of purposeful work by the child).

Your child will learn the purpose of the Trust (to encourage the creation of wealth from one generation to the next, rather than the squandering or wasting of assets).  They’ll learn how to protect it (by keeping the investments in the name of the Trust, regardless of how funds are used, and always titling investments properly on behalf of the Trust). And they’ll learn how to create more wealth in the future propelled by the Trust assets.

After your child’s death, they will pass the Wealth Creation Trust on to their heirs, who will ideally enjoy the ongoing benefit.

In this manner, you create a gift that provides not just a vehicle of financial security, but a foundation for the child’s lifelong education, an energy source to fuel his or her goals during life…and beyond.

Gifts in the amount of $14,000 per year (in 2014) per person can be made into such a Trust for your child without the need to file a gift tax return.

If you would like to learn more about how to establish a wealth creation trust (rather than squandering what you’ve worked so hard to create), contact our office to schedule a time for us to sit down and talk.  We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article. To get started even faster, click this link!