What is Foolsaurus?

It's a glossary of investing terms edited and maintained by our analysts, writers and YOU, our Foolish community. Get Started Now!


Can I Buy a House With My Child's Trust Fund?

Original post by Wanda Thibodeaux of Demand Media

Buying a home with trust fund `money can end up producing a better financial return for your child.

Trust funds are one option for protecting assets for your children. These agreements let a trustee manage the assets on your behalf. Trust funds for children can hold significant amounts of money that can cover some or all of the cost of purchasing a home. Whether you can use the funds in your child's trust fund to do this depends on the type of trust, whether you are a trustee, and the terms of the trust.

Contents

Trust Type

Perhaps the largest determinant of whether you can buy a house with your child's trust fund is the trust type. Trusts fall into two main categories: revocable and irrevocable. With a revocable trust, you can change the trust terms if desired, and you retain control of the trust and its assets. With an irrevocable trust, you cannot change the trust terms, and you don't have control of the assets -- the trust owns whatever assets you include. If you have a revocable trust, it is possible to modify the trust terms to allow the purchase of a home, or to dissolve the trust entirely so you can use the assets. If you have a revocable trust, you generally cannot touch the assets because you no longer own them.

Grantor and Trustee

A grantor is the person who creates the trust, and the trustee is the person who manages the assets in the trust. It is possible for grantors to be the trustees of the trusts they create. If you are both grantor and trustee, even when you have a irrevocable trust, you might be able to use the assets for home purchase, as the trust owns the assets.

Trust Terms

Trustees, regardless of whether they also are the grantor of the trust, have a fiduciary duty to the trust beneficiaries. They are required to manage the trust assets for the good of the beneficiaries in accordance with the trust terms. This means that although the trustee has ownership of the trust assets, he has to use the assets as outlined in the trust. If the trust specifically states that the assets can be used to purchase a home, then the trustee would be within his right to put trust assets toward that purpose. However, if the trust outlines that the funds are to be used for other specific purposes the trustee must follow those guidelines.

Bottom Line

Whether you can use your child's trust fund assets to purchase a home depends on multiple factors. Even if doing this happens to be possible based on the way you've set up the trust, it is a good idea to think about the intent of these funds, which is to provide for your child's future. If you intend to buy the home as a gift, using your child's trust fund to buy the home can be a legitimate financial route that provides your child with a larger investment return. However, if you believe your child will not directly benefit from the purchase, it might be better to leave the trust fund assets alone.


                   

References

About the Author

Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.

Photo Credits

  • Brand X Pictures/Brand X Pictures/Getty Images


Advertisement