Can I Buy a House With My Child's Trust Fund?

Think of your child's benefits when using trust money.
i Jupiterimages/Digital Vision/Getty Images

So, you want to use the kid’s money for a house. On the bright side, this could actually benefit your child because he has a home to grow up in and possibly own some day. However, your ability to do this depends on the type of trust you have in your child’s name and how the trust operates. You included certain instructions when setting up the trust, which might or might not allow changes.

Trustee Management

When you created your child’s trust, you had the choice of naming yourself the trustee or appointing a trustee to manage the fund. The duties of the trustee stem from your written instructions in the trust agreement. These include how the trust continues to receive assets or how distributions are made, such as giving a certain amount of money to the child at a certain age. You can usually use funds from the trust if you are the trustee, but you would have to request funds from the appointed trustee to buy a house.

Changing Trust Directions

Although there are a variety of trusts, they fall under the two main categories of revocable and irrevocable trusts. With a revocable trust, you would have an easier time transferring funds. A revocable trust can be changed at any time. As the trustee, you can do whatever you please. If you assigned trustee duties to someone else, you would have to speak to the trustee about your intentions. The trustee took on the job with your child’s interest as a priority and would decide on appropriate uses for funds.

Irrevocable Trust

An irrevocable trust can pose more difficulties if you want to use the funds to buy a house, but it could still be done. It all depends on the trustee’s determination of the trust instructions. An irrevocable trust remains as the trust agreement originally stated and can’t be changed. You no longer own the assets in the trust because it becomes a separate unit for use by your child at a specific time. Irrevocable trusts are designed to provide protection from creditors, which could arise from debts or divorce situations that would protect the assets. The trustee might determine that a home bought with funds could benefit the child and be considered part of the child’s assets. The trustee would decide if the purchase fits the terms.

Child's Future

Whether you or an appointed trustee make the decision, it would depend on how the removal of assets would affect the child’s future. You set up the trust for use by your child. Removing money from the trust could take away a considerable amount or all of the child’s disbursements when reaching adulthood. However, the trust has tax-exempt status when you buy the home. A home that goes to the child would most likely be worth more to the child in the future. An estate planning attorney can advise you on the best options when using trust money to buy a home.

the nest