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A friend of mine wants to live with me for a while while she gets back on her feet after a recent divorce and cross-country move. She has no current assets. She has asked me, instead of charging her "rent" that we put in a savings account in her name, to do something where she needs my permission to get any money out.
It's not really a trust, I don't think. How do I do that?
Secret coffee can isn't going to work. None of us drink coffee.
If you want a legally enforceable instrument, you should create an irrevocable trust with yourself named as the trustee, and your friend named as the beneficiary.
There are no custodial accounts for competent adults, so if you put a savings account in her name, she can go to the branch show an ID and withdraw everything no matter how you set it up. You could certainly make such an arrangement less convenient for withdrawals by destroying/confiscating ATM cards and checks, but in the end, it will come down to the honor system. This is the simplest solution as long as there is enough basis for trust that your friend will honor the agreement to not withdraw from her account without your "blessing". With trustworthy adults this could be a very beneficial arrangement, because you are providing the emotional support needed to help someone think through saving and spending.
You could create a separate savings account in your own name, which, though you can enforce withdrawals only by permission, collecting money from her and gifting it back can have tax complications. You will owe taxes for the rent you collect if you are collecting this as rent, if you never intend to spend this money, it will still be hard to explain to an auditor that this isn't actually rent. You will owe taxes for the interest earned in the account in your name (probably negligible). When you return the money as a gift, amounts over $15k/year will reduce your estate tax exemption. For these reasons, it will probably be less expensive to use the irrevocable trust, even though you have some setup costs upfront. Your friend should pay the setup costs and any maintenance fees.
Better than any of the possible solutions to do what you are asking would be to encourage the friend to get into some counseling to uncover the deeper issues that are resulting in not being able to manage their money themselves. Any of the other solutions create a lot of potential for hard feelings and tension with you holding the purse strings to their money. Counseling has the best chance of actually solving the problem.
An irrevocable trust would work to keep the money safe from the friend but seems like an incredible amount of overhead and cost.
Simplest way seems to be the bank account in your name unless the amount would go substantially over $15,000. Under that amount and there are no concerns with gift tax. If You are married then the amount free of gift tax issues would go up to $30,000 that could be gifted back to your friend per year.
If the amount is an issue because it will be too large then an account the friends name that you just don’t tell her anything about might work. You might be able to either keep the debit card and use the ATM for withdrawals or checks where you hide the bank information from her.
