Expert: Steve Hach - 10/21/2008

Question
Hi..when my husband died in 2004 he left a bequest to his grandson of $A5000 to be held in trust until he turns 18..this money should probably been put into a bank account for him but has been not done (was I responsible for doing this?) now I'd like to invest that money for this grandson who I believe is 16 or 17 and give it to him when he turns 18..can I just open an account for A$5000 and based on the last 4 years bank interest rates just add that money to the principal and then let it mature for the next year? I am concerned that I may be pursued for the money (these are not my children) and I want to ensure that this grandson gets his grandfather's bequest and as his wife they cant sue or summons me for the money...your advice would be greatly appreciated...btw I live in Australia and I dont know whether the law is different here...thanks  Elly in Oz...

Answer
Hi Elly,

Please keep in mind that I am no lawyer and I am a US citizen so I am unfamiliar with your financial and legal situation.

But, thanks for the question.

Given my limited expertise I will say this...

I do not think it is a problem that the money for your grandson was not invested.  Given the state of the markets and finance today this may be a godsend rather than a problem.  

The main thing is that the money is still there in full and can be given to the heir.

I do not think that you are in any way responsible for lost interest or anything.  Sure, it would have been nice if the cash was in a bank earning interest, but the main thing is that the principle is there.

I think it does make sense to put it into a bank now and earn interest, but I would be hesitant to put it into anything more risky than that given the unsettled state of the world economic system.

Simply put, I don't think there is anything wrong with presenting your grandson with the 5000-- plus whatever interest accrues moving forward-- on his 18th birthday and saying "your grandfather wanted you to have this."

My only concern is actually based on personal experience. I received an inheritance when I turned 18 and proceeded to squander all the money on useless things.  For this reason, many trusts do not pay the heir until the age of 25!

I might suggest that you speak to your grandson and encourage him to leave the money alone for as long as possible.  In a few years that cash may grow into a nice down payment for his first home--something it will never do if it is spent on cars, motorcycles, women, luxury goods, etc.  It might also be used for a nice grand tour after college, or some other life changing event.

But, again, as long as you still have the money in full and the bequest was not more specific as to how to handle the money between the time of the death of your husband and the 18th birthday of your grandson, I do not see an issue.

I know family issues can be sticky and complicated--especially where money is involved--but, as long as you have this money and will provide it to your grandson on his 18th birthday I think all is well.

Please remember I am not a lawyer and not even Australian, so this just represents my personal view.

Best,

Steve