This site has two main themes – the trust funds that I am setting up for my nieces and nephews, and items related to tracking performance in Google Sheets which includes stock classification, calculating returns, etc… As always with any investment, DO YOUR OWN RESEARCH!

My Trust Fund Plan – Matching Stock Investments

I have eight nieces and nephews and no kids of my own on the horizon.  As a result, I decided to set up a trust fund for each of them from the time they get to be 10 years of age until they are at least 18, and potentially indefinitely,  ( In Illinois, the age of consent for UGMA is 21 years old – this is unique for each state – at this point the custodianship ends and the funds transfer directly) I will fund this as follows:

  • Contribute $500 / year
  • Match any contributions that they make up to another $500 / year

The purpose of setting up this trust fund is to 1) teach kids about how stock markets and investing works 2) provide them with an incentive to save money (through the match of their contributions) 3) allow them to invest without a significant risk of loss of their contributions (the fund may lose money on stocks, but since up to 2/3 of the total amount represents my contributions, the losses would have to be very large before it impacted their portion of the contributions).

The results so far have been better than expected.  The “match” concept was well received, and each nephew & niece did save up the entire amount of the match every year.  Our picks have performed well over that time frame, although you can’t compare it to a straight US benchmark because they are typically 60/40 US / overseas and many (simple) benchmarks don’t include the impact of reinvested dividends (which I include in the calculations).

Each nephew or niece is truly the one selecting the stocks (2 stocks from a list of 6), so they have ownership in the outcome.  Portfolio One started in 2001 (actually the first investments hit the account the day after 9/11/01) and they range up to Portfolios seven and eight which began in 2015 and are 4 years old.

Changes Over Time

When we started these accounts, I did not plan out how the accounts would transfer over or what would happen if the beneficiary began withdrawing the funds.  I figured that we would “cross that bridge when we came to it” rather than attempting to anticipate problems and “planning for the worst”.

Portfolio One now is a significant component of the wealth of the first beneficiary and he took out some money from the account in order to make an important capital purchase, which is exactly the type of spending that I hoped to inspire with this effort.  We also moved this account over to the beneficiary and now the trustee has agency power, primarily to keep the use of the free trades that the trustee (although technically I’m not the trustee anymore) receives each year which also apply to this account.

Portfolio Two switched from individual stocks to ETF’s because he joined a professional service firm where stocks have to be reported out and it is too complicated to manage in this environment.  Thus we purchased ETF’s and even a CD in order to balance out the portfolio a bit (so it isn’t 100% “long” on stocks).  This portfolio, too, will likely be changed over to the beneficiary and then I will get agency rights to continue to allow for free trades.

Setting Up A Trust Account

It is easy to set up a trust account with any of the major financial management firms (Vanguard, Fidelity, etc…).  You can create an account where you are the trustee and you can control the buy / sell activity, but both you and the beneficiary can view the activity and results online.  This is a good type of setup since they can see the activity but can’t change the outcome (after all, you are the trustee).  To see the Vanguard site area, go to their home page and then type in “UGMA” and hit search.

If you set up their trust funds under your brokerage “umbrella” (they are separate accounts and the assets are held in the name of the trustee) costs seem to be low and getting lower. Commissions have come down significantly from the $25 or so a trade (buy or sell) that they started at when I began this effort in 2001. The fund providers also don’t seem to be charging account maintenance fees the same way that they used to. Each provider is unique so look into the details. These sorts of costs add up.  Currently I am able to use available free trades on my own account so that for the last year or so the trades made in the trust fund accounts are commission free, which also helps given that $50 (2 buys at $25 / each) used to be a significant portion of a $1500 annual investment every year (about 3% of the total).  I am certain that if you look around the internet you can get lower than $25 / trade, if you are starting from scratch.

The type of account is a UTMA (in Illinois) and the official definition is:

“UNIFORM GIFTS / TRANSFERS TO MINORS ACT (UGMA / UTMA) in ILLINOIS – Irrevocable account established for the benefit of a minor but administered by a custodian.  The initial investment is provided by the custodian as a gift or transfer of assets.”


The tax laws for trusts and minors have changed significantly with the new 2017 tax law changes.  Rather than (potentially) being taxed at their parents’ tax rate, now the minors are taxed similar to trusts.  This is simpler (and more favorable from a tax perspective) than the prior methodology.  I will take this apart in more detail during 2018 since we will have to determine whether these individual trust funds need to file taxes.  Portfolios six through eight are the last ones potentially subject to this tax treatment; the beneficiaries of portfolios one through five already have to file returns due to permanent or summer work in any case.

Why Individual Stocks and Not Mutual Funds or ETF’s?

My goal with this purpose is not as much to help each of them save for college but to teach them about investing and hope that by the time I stop contributing to this they have built up habits where they can continue to save and invest on their own.  That is the reason that I am selecting individual stocks instead of mutual funds (or ETF’s, which were rare or nonexistent when this match concept began in 2001 but are the majority today).  In general, stocks are more expensive in terms of commission and there is not much diversity in a portfolio of just a few individual stock issues.  If this was someone’s portfolio strategy on a large scale, it would be a high risk plan.  However, if you are a kid talking about mutual funds is BORING but talking about individual companies and why they make good (or bad) investments is much more INTERESTING.  The funds have been achieving this result, so far.

UGMA / UTMA vs. 529 Account or Other Investing Options

The tax treatment for UGMA or UTMA accounts is less favorable than the 529 accounts.  You aren’t taxed on the money that you put IN to the UGMA account (because it was already included in your income) but you ARE taxed on the interest income, dividend income, and capital gains that the money earns.  Tax is calculated every year and you need to file when it crosses the above thresholds.  For a 529 account, on the other hand, if you put money in, it grows tax free, and if you use the proceeds for college, you will never pay taxes on the gains earned by the money from the time it was deposited into the account.

Even with the tax trouble the UGMA may still be a decent investment vehicle because it gives you total control over your choices and the money isn’t as abstract as putting it into a 529 account, which generally only limit you to a relatively small universe of mutual funds.  This sort of “match” plan is more difficult to implement in a 529 plan and you can’t customize the portfolio, as well as paying higher fees (Illinois used to have very high expenses for their “Bright Star” plan but they switched over to Vanguard and now their expenses are among the lowest of the 50 states).  For the vast majority of people I’d recommend a 529 over a UGMA account; but for my own particular situation a UGMA is better because the assets will go to the child whether or not they go to college and they can participate in the asset growth and learn about investing at a measured pace.

UGMA / UTMA vs. 529 For Financial Aid:

A 529 plan is also superior for financial aid.  Assets in a 529 plan do not count against a child when they apply for financial aid, while UGMA / UTMA assets do.   In normal circumstances I would recommend a 529 plan for the “primary” funding for a child’s education, and not a UGMA / UTMA.

The Trust Issue:

While I will concede that there are legitimate objections to individual stocks vs. mutual funds / ETF’s (risk of diversification, lack of ability to beat the market in the long run) and UGMA / UTMA vs. 529 plans (tax inefficiences, the fact that 529 plans do not count against financial aid limits) I do not accept the “trust” argument that I frequently hear, which comes down to:

“How do you know that the child won’t just waste the money once they come of age and have full control?”

In a nutshell, you don’t know that this won’t happen.  But if you work with someone and they have an investment stake in the money included in the fund, it seems unlikely that a child who is now an adult that you worked with for years would all the sudden become totally irresponsible and just “blow” the money.  It COULD happen, but why would you plan for that?  Is this how much faith that you have in your child?  Remember, they didn’t just receive this money, they contributed to the investment, and had a significant stake in directing the outcome of the investments.  I really think it is wise to hope for the best.


3 responses to “About”

  1. FernJ Avatar

    Thank you for the information here. I was researching ways in which one can invest for a minor. I like this trust idea, and will look further into it.

  2. Carl from Chicago Avatar

    Thank you very much for the kind words and glad you like the CPIM site. It is true that I haven’t been updating it much any more but I am leaving it out there because it doesn’t cost me much in terms of hosting and I was hoping someone would enjoy it.

  3. CCP Avatar

    My apologies for posting this here, but I wanted to thank you for the certification help site. I know you haven’t been updating it lately, but it’s been a tremendous help to me during my current CPIM pursuit.

    Hope this finds you and thanks again.


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