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Leaving An Annuity In An Irrevocable Living Trust For A Child

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I tried posting this under the general money topics but could not. If someone can redirect this post to the appropriate forum I would appreciate it. In the meantime I will give it a s###### here.

 

http://www.fundadvice.com/fehtml/parents/9408.html

 

The above link is to an article that explains how to leave a potentially large sum of money to a child through an annuity that is placed within an irrevocable living trust. The annuity company can be a low cost provider such as Vanguard or TIAA-CREF.

 

My only problem with this strategy is having the money tied up for such a long period of time. Life throws us unexpected emergency's and I would like my kids to have the ability to have access to the money for unforseen hardships. I have three very young children, ages 4 months, 2 and 4 years of age. I would like to make an initial 10,000.00 investment on their behalf and and let it accumulate for them for 30-40 years and hand it over to them when they are mature enough to handle the money without squandering it. My wife and I would most likely keep it a secret from them in hopes of giving them a pleasant surprise later in life.

 

I can not fund an IRA on their behalf because they have no earned income obviously and I don't like the annuity route for the reasons I mentioned above. The other strategy I came up with that would give me as close to tax efficiency as an annuity, is using Index funds within a Uniform Gifts to Minor Account, such as a total stock market and an international index. The distributions are low resulting in less tax liability than the average mutual fund, I have diversification, very low expenses and the ability to distribute the money to our kids when we decide and not bound by the age restrictions of an annuity.

 

I know that UGMA'a accounts have their own ramifications such as qualifying for financial aid (our income is high and I don't think we will qualify for it anyway)and the kids gain control over the money when they reach age of majority. If I am willing to take these chances, this sound like a good alternative to the one mentioned in the article I referenced. Your suggestions are appreciated.

 

Thanks

 

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The above link is to an article that explains how to leave a potentially large sum of money to a child through an annuity that is placed within an irrevocable living trust. The annuity company can be a low cost provider such as Vanguard or TIAA-CREF.

 

My only problem with this strategy is having the money tied up for such a long period of time.

 

 

My first reaction, why not put the money into an annuity with your trust as the beneficiary? The money is tax deferred so you have no implications while invested; if you live you pull it out and give it to them; if (God forbid) you die, then the money (in form of a death benefit) goes tax free to your trust which will, in detail, spell out how much goes to who.

 

You should be able to find a decent annuity with only a few year surrender period and guaranteed return of premium. I hope I'm not overlooking something that you're saying.....

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