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

Can I Buy a House With My Child's Trust Fund?
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Can a child buy a house? Probably not. In most states, a homebuyer must be at least 18 years old to legally take part in real estate transactions on their own. But purchasing a home with a trust is a different matter altogether.

Trust funds are one option for protecting assets for your children. Trust agreements let a trustee manage the assets on your behalf. Trust funds for children can hold significant amounts of money that can cover some or all of the cost of purchasing a home.

Whether you can use the funds in your child's trust fund to do this depends on the type of trust you've created, whether you're acting as trustee, and the terms of the trust. Learn how to set up a trust fund for your child and which type of trust to choose.

Types of Trusts

Perhaps the largest determinant of whether you can buy a house with your child's trust fund is the trust type. Some types of trusts enable you to purchase the home on behalf of someone else, while others make it very challenging to do so.

Trusts fall into two main categories: revocable and irrevocable trusts.

You can change the terms of your revocable trust during your lifetime, and you retain control of the trust and its assets until you die. But you cannot change the terms of an irrevocable trust after you've created it, and you must give up control of the assets. The trust owns whatever assets you place into it.

It's possible to modify the trust terms to allow the purchase of a home if you have a revocable trust, or to dissolve the trust entirely so you can use the assets. You can't touch the assets you've placed in an irrevocable trust because you no longer own them.

Grantor and Trustee

A grantor is the person who creates the trust, and the trustee is the individual who manages the assets in the trust. It's possible for grantors to act as the trustees of the revocable trusts they create, so you can keep that control. But that's usually not possible if you create a revocable trust. The very structure of the trust forbids the grantor from remaining in control of it or its assets.

You can usually use the assets within the trust for home purchase if you're both the grantor and trustee. Or you can direct that your named trustee should buy the home for your child if you create an irrevocable trust and include this provision in its formation documents.

The Terms of the Trust

Trustees have a fiduciary duty to the trust's beneficiaries regardless of whether they're also the grantor. They're required to manage the trust assets for the good of the beneficiaries in accordance with the trust's terms established in its formation documents. This means that although the trustee has ownership of the trust assets, they have to use the assets as outlined in the trust.

If the trust specifically states that the assets can be used to purchase a home, the trustee would be within their right to put trust assets toward that purpose. But the trustee must follow those guidelines if the trust outlines that the funds are to be used for other specific purposes.

Bottom Line

Whether you can use your child's trust fund assets to purchase a home depends on multiple factors. Even if doing so happens to be possible based on the way you've set up the trust, it's a good idea to think about the intent of these funds, which is to provide for your child's future.

Buying a house with trust money as a gift can be a legitimate financial route that provides your child with a larger investment return. But it might be better to leave the trust fund assets alone if you believe that your child won't directly benefit from the purchase.