I oversee an $80,000 trust for a 15-year-old. What should I do about meddling family members?

Managing a Trust for a Young Beneficiary: Guidance for Trustees

“My intention is to use the trust assets to fund a Roth IRA for my relative once they begin earning income.” (Photo features models.) - Getty Images/iStockphoto

Letter to the Advisor

I am overseeing a newly established trust for my 15-year-old relative, which will be funded with around $80,000. In addition, they already have approximately $32,000 set aside in 529 college savings plans. The trust is scheduled to transfer to their control when they reach 21.

The plan is to invest the trust in Vanguard index funds. I’m seeking advice on how to balance factors such as stock versus bond allocation, minimizing taxes, and addressing both short-term objectives like saving for a home and long-term goals such as retirement planning.

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Once my relative has earned income, I hope to use the trust to contribute to a Roth IRA for them. I have decades of experience managing my own investments and want to ensure I’m making the best choices to set them up for future success.

Additionally, I need to consider the perspectives of other family members. I want to encourage good financial habits in my young relative without overstepping parental boundaries. How can I navigate the needs of the parents, the beneficiary, and other relatives?

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You must embrace your responsibilities as trustee. Managing differing opinions from well-intentioned relatives can be challenging. - MarketWatch illustration

Advisor’s Response

Trying to please everyone is a recipe for stress.

As the trustee, you were chosen for your judgment and reliability. The grantor trusted you to manage the trust’s assets wisely. It’s important to confidently fulfill your duties, even if that means tuning out unsolicited advice from family members.

When relatives inquire, you can simply explain, “I’m ensuring the funds are managed for the beneficiary’s benefit until they turn 21,” or “I’m following the trust’s guidelines and keeping the parents informed. If you have concerns, please discuss them with the parents.”

You are not obligated to provide detailed explanations or entertain lengthy discussions about what others would do if they were in your position. The responsibility is yours, not theirs, and their role is to respect that boundary.

However, the beneficiary’s guardians—typically the parents—should receive regular updates. This includes annual statements, details on distributions, and a summary of all assets held in the trust, such as stocks, bonds, real estate, and bank accounts.

Understanding Beneficiary Rights

According to the , beneficiaries are entitled to certain legal protections and rights, requiring trustees to act in their best interests and adhere to the trust’s terms. These rights are established by both state law and the trust document itself.

A carefully crafted trust can offer extra safeguards, ensuring the grantor’s intentions are honored. The trust document may specify the trustee’s responsibilities, clarify beneficiary rights, and include measures to protect the beneficiary’s interests.

Such protections might include shielding assets from creditors or poor financial decisions, or setting conditions on distributions to guide or protect the beneficiary.

Investment Strategy and Asset Allocation

For a 15-year-old with a long investment horizon, an aggressive portfolio—such as 80% to 90% in stocks and the remainder in bonds—can be appropriate. Parents should lead by example in teaching financial and investment skills, while any guidance you provide is an added benefit.

The most significant challenge will be preparing the beneficiary for the eventual transfer of assets. It’s crucial they understand how the trust grew and how to continue managing it responsibly. This education should be a collaborative effort between you and the parents, helping the beneficiary focus on both immediate and long-term financial goals.

Assuming stocks return 7% annually and bonds 3%, an 80/20 stock-bond mix could yield an average return of about 6.2%, potentially growing $80,000 to roughly $268,000 over 20 years. A more conservative 70/30 allocation, with an estimated 5.8% return, could result in about $247,000. Higher risk can lead to higher potential returns, but also greater volatility.

To minimize taxes, avoid generating unnecessary taxable income. Exchange-traded funds (ETFs) are generally more tax-efficient than mutual funds, as mutual funds can trigger capital gains taxes even without selling shares.

These figures are estimates, not guarantees. Be mindful of market downturns, recessions, and unexpected events—recent decades have seen the dot-com crash, the subprime mortgage crisis, and a global pandemic. Use this as a teaching moment about risk tolerance.

Several factors will shape your approach: the beneficiary is still years away from needing distributions, has a separate 529 plan for education, and won’t receive the trust until age 21, with retirement far in the future.

It’s also vital to set realistic expectations for the parents. If any financial professional promises guaranteed returns, be wary. Your role is to make prudent decisions based on historical trends, not to promise specific outcomes.

Remember, you’re a trustee—not a miracle worker.

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