Fool's School Investments for Children

Here's some irony for you: Children stand to benefit the most from investing, but they cannot have brokerage accounts of their own. Do not fret, though. You can get around that obstacle.

Consider a trust fund, if you can afford it. You will have to manage it yourself or pay someone to do so. It eventually becomes the property of your child, but he or she cannot take control of it until reaching an age you specify.

Stocks bought for youngsters are frequently set up in Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) accounts. The investments belong to them, but they cannot take control of them until early adulthood. Until then, the custodian (probably you) controls the money for their benefit.

You can also open a simple joint brokerage account, which you control until the child becomes an adult. Note that whoever's Social Security number is on the account will face taxes on any gains. Since your children are probably in a lower tax bracket, their numbers might be the best ones to use. Learn more about such tax issues at www.fool.com/taxes and www.fairmark.com/custacct.

A great way to get children started is through Dividend Reinvestment Plans (and Direct Stock Purchase plans). They allow you to buy small amounts of stock at a time, directly from the company, bypassing brokers. Just ask a company you are interested in if it offers such plans. Before opening an account, learn more about these plans at www.directinvesting.com and www.fool.com/School/

DRIPs.htm

Informal arrangements can work, too. If you own stock in McDonald's Corp., you can "sell" your son a few shares. If you are buying 50 shares of Wal-Mart Stores Inc. and your daughter wants to buy some, you can combine orders and buy 51 or 52 shares. Just keep track of which shares belong to whom. Once your children become adults, they can open their own brokerage accounts, and you can transfer their shares.

Teach your children about money with The Motley Fool Investment Guide for Teens by David and Tom Gardner with Selena Maranjian (Fireside, $14), or point

them to www.Fool.com/

teens.