Here's my question. In the US, is there a way to create an account of some sort
with limited access for children who are not your family members. The principal
requirement is that once the funds are deposited they need to be accessible by
no one but the children in question at the time they are starting college.
Thanks for any insight or advice.
Boris Epstein writes:
I doubt there's any pre-defined, standard account type that can
However, you can create a trust that has the disbursement
restrictions you desire, open an account with that trust as
owner, and deposit funds into the account.
There will of course be fees associated with drafting and
executing the trust, annual tax returns and taxes for the trust,
and fees to the trustee(s) (though perhaps you can find people
who would be willing to serve as trustee for free -- including
A 529 might well meet your needs. It may be opened by any US citizen
or resident alien with a SS or TaxpayerID. The beneficiary may be any
citizen or resident alien. There does not need to be any relationship
between the owner of the account and the beneficiary.
The beneficiary may be changed - by the owner, not the beneficiary - to
any other qualified beneficiary (which usually means the new
beneficiary must be related to the previous beneficiary - ie. sibling,
parent, cousin, child, etc). Note that there may be gift tax
consequences to changing a beneficiary).
The owner of the account is responsible for actually handing off
contents of the account (ie. if the beneficiary goes to college, the
owner chooses to pay for it out of the account).
It is *not* however, a trust, nor are the funds restricted in the way
you seem to describe. The beneficiary has no right to the money
whatsoever - it's entirely at the discretion of the owner.
It would certainly be possible to set one up with the child as the
beneficiary and the owner as someone else besides the person who makes
If you really want strict access controls and rules for distributions
whereby you can say things like "this can only be used for college" and
you don't have to be involved later, you need a trust which specifies
the restrictions and someone willing to be the trustee (and if nobody
wants to volunteer, you can pay a professional third-party trustee, but
it's not going to be terribly cheap).
Such trusts are extremely common in estate planning - if parents die,
money goes into trust for kids, kids only get distributions for health,
education, etc, and if there's money left after kids reach certain ages
(often 25, 30 or older), the remainder then gets distributed (or, if
the giver wants, have it distributed otherwise if not used for the
original specified purposes). There's nothing saying you can't set up
such a trust for someone not related to you.
Note that a non-parental 529 may have a substantial impact on potential
financial aid (particularly in the year after a distribution is made)
which is different from the impact a parent-owned 529 has. Same thing
for distributions from trusts for the kids. If there's any expectation
or hope for financial aid, this is something to discuss with a college
financial aid specialist.
For the rest, see a trusts and estates attorney. And there is no
substitute for someone who specializes in this. Someone who does all
sorts of law and only does the occasional trust or estate is not the
person I'd generally want doing the trust.
David S. Meyers, CFP®