I'm not sure if this is more of a financial or legal question. Let's say there's some tension in my marriage, and my wife and I would like to set aside money in a way that, if we were to get a divorce, it would be somehow held for our daughter's education and neither of us would be able to deplete it? Ideally, she would also be required to use it for educational purposes and would not have the option of spending it frivolously. Is there any mechanism that could achieve this, something like a trust?
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5This seems like a question that requires a lawyer.– user32479Nov 16, 2015 at 19:43
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3Please specify the country. Laws and account types vary.– Chris W. ReaNov 16, 2015 at 20:45
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1 Answer
I don't know of any financial account that offers that kind of protection. I'm going to echo @Brick and say that if you need that level of restrictions on the money, you should talk to a lawyer. Your only option may be to setup a trust.
If you are willing to go with a lower level of restrictions on the account, a 529 plan could do the job. A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It will be in your daughters name, and has the benefit of being tax advantaged, unless its used for non educational expenses. Since your daughter is a minor, there would have to be a custodian for the account that manages it on her behalf. The penalty for using it for non educational expenses might suffice to keep the custodian from draining the account, and I believe the custodian has a fiduciary duty to the account holder, which would open them up to lawsuits if the custodian did act in a way that was detrimental to your child.
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Yeah a well set up trust in certain states in the US can offer the protection. Notice the well set up part. The seek a lawyer comments/answers would be your best bet.– RossNov 16, 2015 at 21:18
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1"It will be in your daughters name" I had 529 as a first thought, but googling suggests the child is the named beneficiary, but one parent (or grandparent) is the account owner who makes the investment decisions -- and there is nothing intrinsic to the 529 account that prevents that parent from liquidating, paying the income tax and 10% excise tax penalty, and keeping the money: divorcemoneymatters.com/… Nov 16, 2015 at 22:08
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A 529 account is a good idea in normal circumstances, but it will not do anything like what the OP wants. Its purpose is completely different. I agree with @user662852. Also, it will not be in the daughters name. The daughter may be the beneficiary, but she generally would not be the owner. (If Bishop has an idea of how the daughter can be the owner to deal with the problem described the OP, I think that would be interesting but deserves more detail.)– user32479Nov 16, 2015 at 22:19
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@brick, the daughter can definitely be the account owner. There would just need to be a custodian specified until she is of age.– BishopNov 17, 2015 at 14:32
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2@Bishop Thx. Found this info supporting your point. Also seems to do what the OP wanted (depending on state): "Nearly all 529 savings plans have special procedures to accommodate UGMA/UTMA 529s. For example, the plan administrator will not permit changes in the beneficiary designation prior to the current beneficiary's 18th or 21st birthday (depending on the state). And when the current beneficiary reaches the age of legal ownership, he or she will have the right to contact the 529 plan administrator and take direct ownership and control of the 529 account." savingforcollege.com– user32479Nov 18, 2015 at 0:15