Looking at creating a FP and want to put kids in there as an investment vehicle. Lawyers keep saying I have to do a trust for the kid. Anyone aware of an alternative? It's not a common topic so researching keeps coming up purely estate planning ideas.

What's the aversion to a trust?

Could you give them part-time jobs and open Roth IRA's for them?

Look into the Uniform Transfers to Minors Act (UTMA). It allows you to give your kids money, invest it for them, and it transfers to them at some point (depends on the state, i think Texas is 21).

I have a FP and also have trusts for each of the children. Yes there are some up front costs to setting up trusts (legal) and continuing costs (acct and legal), but the benefits outweigh the costs in my opinion.

The trusts are excellent vehicles provide security protection for the boys and your family if that is your intention.

I gift to the children trusts each year and then invest it like I want to. At some point, either before I pass or after, my portion of my estate and family partnership will pass to my children's trust.

Trusts protect generational wealth. There are lots of potential examples. What if your child is in an auto accident and gets sued, trust assets are protected . What if your child gets married and then divorced, ex spouse can get 1/2 of your money that was given to child, where as assets in trust are protected

You as trustee can distribute money to child as needed or as desired, and you can also turn over the trust to your child to manager when you feel comfortable

Opened an UTMA for our son. Have been teaching him (9) a little about investing and have incentivized him to invest any chore money. We match anything he puts in. I guess it's a 401Kid.

Have there been any limitations tbe FP can invest in with trusts as LPs within it? That is my main concern. Are you covering the taxes for the trusts too?

My children trust and my FP are separate entities. Right now my FP is owned by my wife and i as limited partners and we are also the GP, and we have the FP prepare a k1 to send to us for our tax preparation

When the time comes (either as a gift or when my wife or I die), the children's trust will own a percentage of the FP. I presume then the process will be the same , k1 to children's trust and trust will then owe taxes or need to do a k1 and distribution to the children for tax reporting purposes.

The FP can live on forever as a separate investment vehicle, and the ownership of that investment company can be passed down as needed.

My current children's trust balances are small compared to the FP, and the trust investments don't generate a lot of taxable income , so taxes haven't become an issue yet.
The trusts have investments in multi family partnerships along with stocks ( Apple, google, Microsoft etc)

Trust tax rates are low for the first 3000 or 4000 of income, but after that, they get really high rates, so need to have a plan on optimizing taxes. My plan is to not make a lot of taxable income in tbe trusts, therefore taxes are not due until I sell assets or start to distribute the trusts to the children

Makes sense. Who invests on behalf of the trusts? I'm trying to have my kids as LPs in the FP so I'm investing with one vehicle and their wealth is accruing via that. Instead of trying to hand them down whatever it is wire and I make as sole LP at some later date.

Is FP a Family Limited Partnership? Assuming that is the case and purpose of establishing it is to reduce estate tax exposure, you are already receiving discounts on valuation just by the nature of the FLP.

You can further leverage those discounts (and potential expiration of current estate tax exemption amounts in 2025) by making annual and/or lifetime gifts to the LPs. If the LPs are minors or if you wish to protect those assets from marital assets, creditors, etc…then trusts are very preferable. That being said, the administration and record keeping will likely be a hassle and expense.

I'm not looking at this so much as estate planning. That seems to be the dominate thiught. I want a vehicle so my kids are investing for 15-20 years before they turn 21. Time in market trumps timing market etc etc

If that's the case I'd probably just do 529s. Grows tax deferred, Tax free for college, some can be converted to Roth IRA later if not used for college, and you can retain total control as owner even though you have gifted the assets. If they have any earned income along the way, open Roth IRAs and fund those.

Is it limited in future use for only education? My goal is to have zero limitations just as an adult does as a GP within a FLP

No, it's not limited but is definitely tax favored for education or conversion to Roth IRA. It's not the most tax efficient if the earnings aren't spent on qualified education expenses (income taxed + 10% penalty) but you retain control. Trusts can also have tax complications, btw.

Ok thank you. I'll look into the 529s!

529 are good for college expenses but might not capture what you are trying to accomplish

If doing a trust or UTmA, please make sure that you have a good understanding of kiddie taxes and rates etc. if your children start to earn a lot of passive income, it can cause some tax issues (kiddie taxes)

Regarding investing in a trust, you (or whoever you pick) as the trustee picks whatever you want to invest in

But if you haven't saved anything for college expenses, 529 plans are excellent choices, but I do think that most states 529 plans are limited in your investment choices. I don't think that you can invest in single stocks or etfs, but rather sector funds managed by the states 529 facilitator

Do the trust. The problem with with custodian/uniform gift to minors accounts is they get the money when they are way way too young to make good decisions.

To me that's why putting them in a FLP has a lot of upside. The wealth can be illiquid within it.

ATX Advisors said:

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No, it's not limited but is definitely tax favored for education or conversion to Roth IRA. It's not the most tax efficient if the earnings aren't spent on qualified education expenses (income taxed + 10% penalty) but you retain control. Trusts can also have tax complications, btw.

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The Roth conversion is helpful for excess 529 assets but severely limited in the amount that can be converted.

Key limitations:
The 529 plan must be under the beneficiary's name for a minimum of 15 years.
Yearly conversions cannot exceed annual Roth IRA contribution limits.
The lifetime 529 to Roth IRA rollover limit is $35,000.

This also assumes Congress doesn't change the rules again to take away this option.

Why not just simply gift them the amount needed to start a investment account anywhere you choose, fidelity, charles schwab, ect. You are on the account and control it as guardian until they turn 18.