
TrustEgg (YC W11) Allows Anyone To Set Up A Trust For Their Kids - twakefield
http://techcrunch.com/2012/08/29/trustegg-allows-anyone-to-set-up-a-trust-for-their-kids/
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mfringel
I sincerely hope that you succeed. This is a brilliant idea. Here's why:

I think that we're at a Nash Equilibrium for Trusts, at the moment. That is,
Trusts are only useful and good for sheltering assets because only a
privileged few know how to use them to their advantage. Since the volume of
people is small, and enough of those people are sufficiently influential, the
IRS looks the other way.

As soon as a large amount of people can create trusts easily, I predict that
two things will happen, roughly in order:

1) The IRS will attempt to reclassify trusts in a way that preserves revenue.

2) The privileged few who have always used trusts as a matter of routine
financial planning will seek to create a new class of trusts that will not be
vulnerable to #1.

Given that #1 is inevitable, and #2 will add some sunlight on things, I have
to say that this is fascinatingly disruptive.

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travisp
>That is, Trusts are only useful and good for sheltering assets because only a
privileged few know how to use them to their advantage. Since the volume of
people is small, and enough of those people are sufficiently influential, the
IRS looks the other way.

I think this is maybe a little misleading (at least to those who don't know
much about them) because trusts generally don't really shelter income from the
IRS. For the most part, they just change timing. Trusts, in fact, can actually
be subject to higher tax rates than most individuals are. As I understand it,
the tax benefit usually comes from giving money _now_ and not having to worry
about gift or estate taxes on a higher future valuation, only the current
valuation.

Trusts are good for _anyone_ who wants to avoid probate costs, which depending
on location can be 5% or more (in addition to the other disadvantages of
probate). Many middle to upper middle class families would fall into a
situation where a simple trust could save their children tens of thousands of
dollars in probate court costs.

There are also a number other situations where the non-"privileged few" can
and do benefit from trusts, including the one that this seems to be set up to
handle -- gifting money to a child or grandchild for their future, without
giving them immediate access to it.

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nanijoe
I hope this succeeds. I have 2 kids , and my basement is full of gifts from
birthdays past, that they will probably never use. Now bear in mind that these
gifts are from relatives with great intentions. If instead of those gifts, my
kids had received a contribution to their trust funds , I think that would
have been more beneficial.

~~~
Bricejm
Jeff - Founder/CEO - This is exactly what we want to do. Most parents we've
talked to have made the same comment. Saving for a child's future should be
easy, and involving the child's family/social network is our goal.

~~~
hosh
Thanks for doing this!

I had fully intended to set up the trust ... the old hard way ... but this
will make things easier.

Will you be offering trusts that can pass on digital assets?

~~~
Bricejm
Jeff - Founder/CEO - In the beginning we will only be able to accept deposits
from a bank account. Taking on other assets would require more infrastructure
and cost. We hope to expand and offer more trust products as we grow.

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greenyoda
Does someone who opens a trust account in 60 seconds on a web site really
understand the legal, financial and tax implications of what they're doing?

~~~
Bricejm
Jeff - Founder/CEO - This will all be made clear. It's a UTMA and very easy to
use. We will also be handling everything behind the scenes. Saving for your
child can be complicated, but that is what we're going to change.

~~~
jimsperry
Can you explain how a solution based on UTMA account is a better solution
compared to a 529-based solution. 529's seem to have much better tax
advantages when the primary focus is saving for college (which I assume will
be the primary audience for your service).

~~~
Bricejm
Jeff - Founder/CEO A UTMA can be used for non-education expenses without a
penalty. Gains, to an extent, on the account can also be offset by the kiddie
tax exemption. We will be providing the education and tools to explain this
and make it as easy as possible. A family could also pair a 529 plan and a
TrustEgg account to save.

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chime
This is exactly the kind of startup that we should encourage the most - it is
taking a messy, complicated real-world problem that can only be solved by
spending lots of money or doing tons of paperwork and turning it into an app
that grandma can use!

Best of luck to the founders! Just signed up and sent the link to my friends
with kids.

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latortuga
Brutally honest: if you can't get basic things like mixed content issues
worked out, how do I trust you with the security of my money? First
impressions are really important.

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blake8086
"[getting] mixed content issues worked out" seems like such an incredibly weak
signal to determine whether someone is trustworthy "with the security of my
money". Is this really the best tool you have available to decide whether to
trust or not?

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latortuga
I totally 100% agree with you but I'm not the average web user who will see a
red lock icon with an X over it and think "these guys aren't running a secure
site". As web-savvy folks, sure, we know that it's a basic change and the
security shortfall is minor (potentially not, though! there's a reason for
mixed content warnings). You're average user has to be conditioned to even
look for the lock or the https and seeing a big red X over it isn't doing
anything for trustworthiness.

~~~
simonbrown
The security shortfall isn't minor. In Chrome (other browsers don't
distinguish the severity), a crossed-out HTTPS means that a MITM attacker has
the ability to run arbitrary javascript on the page. It doesn't even bother
running severe mixed content now, though.

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RollAHardSix
HN has a very diverse set of readers; is anyone knowledgeable able to provide
insight as to why we would want to open a trust, and any implications it would
have?

As a single-father I am very interested in any knowledge that can be shared on
this subject.

~~~
Bricejm
Jeff - Founder/CEO - A trust is protected and in the child's name. Can't be
touched by parents or the parents creditors. We also let you take advantage of
the Kiddie Tax exemption. There are also no minimums. We offer access and
ease.

~~~
danielweber
I am familiar with the Kiddie Tax. I do not recognize the phrase "Kiddie Tax
exemption." Please explain what that is.

~~~
Bricejm
Jeff - CEO/FounderThe first $950 of investment income for a child is tax free.

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makmanalp
Can anyone quickly sum up the benefits of trust funds over other forms of
savings? Is it just a tax deduction?

~~~
bartonfink
I believe a trust fund lets you put conditions on what would otherwise be a
"gift". For instance, if you die and you'd like to ensure your children go to
college, you can set that as a condition for their inheritance by setting up a
trust with an executor who's job it is to respect those conditions. I am sure
that there are limits on said conditions and they could be challenged, but I'm
pretty sure that this is a major benefit over just stroking someone a check.

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tocomment
This is really interesting. I've always thought there are a lot of
opportunites in democratizing this sort of legal stuff.

Have you guys considered branching out into other types of trusts?

~~~
Bricejm
Jeff - CEO/Founder - We will be creating other trust products down the road,
but for now we're concentrating on children's savings.

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tocomment
So how is this better than opening an account (savings or brokerage) in the
child's name with the parent as the custodian?

~~~
Bricejm
With TrustEgg you will be able to share the account with
grandparents/aunts/uncles, etc and they can make deposits as well.

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justincormack
I think the article might be exaggerating the success of the UK scheme. I am
sure it was fairly successful when the government was giving kids money, but
now it is just a tax exempt savings scheme (like children pay tax anyway) not
sure it has made a difference.

~~~
Bricejm
Jeff Founder/CEO The government seeded the accounts, but it prompted families
of all income levels to begin saving.
[http://www.guardian.co.uk/money/2010/may/25/child-trust-
fund...](http://www.guardian.co.uk/money/2010/may/25/child-trust-funds-zoe-
williams#history-link-box)

~~~
adamneilson
And the scheme has subsequently been canned. They have replaced it with a
child ISA instead. Not sure if that was due to be being too successful.

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arkitaip
Interesting idea but the branding is terrible and completely out of touch with
the times.

~~~
earbitscom
They're supposed to get branding perfect before launching a pre-beta signup
form? What if they don't get the necessary traction, investment or licenses?
Sounds like a terrible waste of money and bad prioritization for a startup in
their situation.

~~~
dman
Disputing feedback when people give it is a surefire way of making sure that
no feedback is given in the future.

~~~
earbitscom
When I see constructive feedback, I'll take that into consideration.

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aidenn0
How does a trust compare to a UGMA/UTMA?

~~~
Bricejm
Jeff - Founder/CEO - A TrustEgg account is a UTMA. TrustEgg is the custodian
and we will provide the infrastructure for parents and other family members to
make easy transfers into the account - both one time and recurring deposits.

~~~
aidenn0
Ah, that makes a _lot_ of sense. Is there a process for using money for the
beneficiary before they reach majority?

That seems the only downside of not having one of the parents retain
custodianship (which is bad tax-wise if they die). It's not really a big deal
for me, since I'm using my kids UTMAs as college-savings/nest-egg and have no
plans of using it before they are 18.

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api
Does it guarantee dreadlocks?

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jellicle
This should be a great way to fleece unsuspecting unsophisticated investors
trying to provide for their children. For instance, front-loading a bunch of
fees against the deposited amount, so that if, say, the child dies, you get to
keep most of the money.

[http://www.moneyville.ca/article/1244729--fees-eat-
up-90-per...](http://www.moneyville.ca/article/1244729--fees-eat-up-90-per-
cent-of-parents-refund-on-education-plan-after-baby-s-death)

Be sure to market it to the poor primarily. The marketing tagline can be
something like "The wealthy use trust funds to provide for their children -
now you can too!"

Should be highly successful, even though there are zero benefits to trust
funds for 99% of the population. Actually it's probably a net minus for most
people, due to the way college financial aid is calculated.

I give it an A+ for income potential, C- for utility, F for ethicality.

~~~
Lukeas14
Could you explain why a trust fund is a net minus for most people, and how
college financial aid is affected by it?

~~~
whafro
At many of the top colleges and universities in the US, the institution is
able to meet 100% of the "demonstrated financial need" of the family. At
several schools, all of the provided financial aid comes in the form of
grants, which is basically free money.

At all of these schools, while the tuition price tag might be $50,000 per year
or more, relatively few families actually have to pay this sticker price. At
my alma mater, Bowdoin, the overall cost is around $54k, but the average
financial aid package (according to the College Board) is $41k, leaving the
average Bowdoin student on the hook for only $13k a year.

If you're a family that otherwise would qualify for a large amount of
financial aid, but you've saved up into a trust or other savings plan for the
purpose of funding your child's education, you'll lose this free money. The
institution will count this amount against your demonstrated financial need.

Some families with means are able to hide away these funds, and still get
significant financial aid from a school like Bowdoin, but most families don't
have the resources or savvy to do so.

Of course, if we're talking about institutions that don't have such strong
financial aid programs – which is the vast majority – you probably want that
savings. Deciding to save for your child's education is, statistically,
usually a good decision. If your child ends up going to one of the above,
though, it can be a costly one.

~~~
pdsull
But it also depends on how the trust is created. I have no idea how TrustEgg
establishes the trusts, but many people set up trust funds for their children
- but name the child as an alternate beneficiary, after themselves. So, if I
set up a fund for my child - the trust fund would be mine until I died.
Assuming I was still alive while my kid was at college, the trust fund would
be mine and not hers.

~~~
Kadrith
From what I recall the parents assets can be used, up to a certain percentage,
to determine what the child is eligible for. One way around this is to use a
Roth IRA, since it allows you to take money out for college without a penalty
and would not be used to determine FAFSA.

