My parents had a similar situation where they had been putting money into an UGMA for my education. Though I knew about the money and agreed with it’s use for education and home equity they rolled the UGMA into a new Trust that was controlled by them and which expired much later (when I turn 35 I think). Depending on how the assets are held that might be the easiest solution, make yourself the trustee of a new trust with the assets. There might be tax consequences though that I’m not considering.

Although i don’t know what the legal ramifications are, on a personal level, since you created the fund, if you feel now that your son would not be responsible in handling the money, if legally possible, i would defer telling him about the fund until a later time, perhaps in a few more years, but there is the possiblity he will resent you for doing so later. Although putting myself in that same situation, I don’t think i could really be angry with parents who were gifting me such a substantial amount of money, even if they modified the initial decision to give me acces at age 21.

One issue is the account should have your son’s social security number associated with it. As a result, he will receive 1099’s reporting interest and dividends he must report on his tax return. This will at least make him aware of the money.
I have had friends with a similar problem in the past. Rather than hide something that the kid is going to figure out before too long, they approached it so they could try to maintain some control.
In their case, the father disclosed the funds to the kid when he was 19. He told the kid he wanted to help oversee the funds while he is younger. The parent suggested a very simple living trust where the parent was the trustee of the trust. They also included provisions limiting what the son could use the funds for (i.e. college, down payment on first house, health care, etc.)
This kept the father in day to day control of the funds. It worked well for them. The son enjoys having his dad watching out for him. The dad enjoys the opportunity to reign in the kid.
Now, this is not a perfect solution. It’s the kid’s money. For this to be a living trust, the kid must be the grantor and retain the power to change the trust at anytime. This includes changing the trustee to himself, changing the provisions about what he can spend his money on, etc.
While not perfect, in this case the father has been the trustee of the son’s funds for about 10 years now and they seem to be working well together.
When you read about living trusts, they are typically “sold� as estate planning tools, which they are excellent at, but they can work for this purpose also. Check out Nolo Press (http://www.nolopress.com/resource.cfm/catID/9F594B71-B41B-4513-923BF19B4D9ACDAA/309/227/). You can find estate planning books in your library – but be very careful of using dated materials. Laws change and it’s important to deal with the rules the way they are today.

When we make a gift, it should be done with no strings. The desire to control what that person spends the money on is a battle that is, in my mind, wrong minded.

I had an uncle, who has since passed away, who used to give Christmas gifts in the form of cash to his nieces and nephews and would state what the money was for and want a letter telling him what we spent it on. I did not have a problem generating a thank you letter but took issue with the strings that he had attached to the gift.

UGMAs are irrevocable gifts and that money belongs to the child to do with as he/she pleases. You are facing a major hazard of the UGMA account.

The truth is that the vast majority of us would probably make less than intelligent decisions if we were given a pile of money at that age.

Perhaps others will learn from this example and think twice before establishing an UGMA if they are concerned about these particular issues.

In the meantime I suggest you get over your issues and concerns, view this money in economic terms as a sunk cost, and try to offer some reasonable, unemotional advice to your child when you disclose the gift.

And then observe from a distance with no more comments as he does what he pleases with the money. And if he squanders it, he will have regrets later in life.

You mean he doesn’t know about it? hasn’t been helping build it? you waited till now to wonder that question!!!!!!

Now is too late to help make the fund a part of his training!

Bit late now, but sit him down with a short explanation of what the money is for, how it got there and how you hope it will be used. but he isn’t a baby any more, you don’t get to pick everything for him. (though it certainly would be easier)

I had an account in my daugher’s name. When she got old enough, she demanded the money. I gave her the account book, she took all the money out, bought a car with it and wrecked it 2 months later with no insurance coverage. all the money was then gone. She has gone on to lead a very irresponsible life!

My first worry was about the tax implications for him, as well as college funding.

Second worry is that you are so disciplined to save 6 figures, but haven’t been able to impart that fiscal savviness to your son.

Can you tell him about the money, but make him undergo some personal finance training before he can have access to the money? I could imagine that you strike a deal where you would let him decide the investments until he’s 25 (but not spend any of it, except for college), and if he can demonstrate knowledge in that, he can have the money.

How old is he? Does he file taxes?
I assume that if he knows nothing about the money, he has never seen a 1099 from the investments. Again, if the above is true, I would check out if he needs to amend tax returns.
As for “how to deal with this”, go back to square 1. Try to teach him about money management… including the spending of some of it. Learn what his goals are help him figure out responsible ways to achieve them. Make sure he understands the value of money, that is, how much work he would need to do to earn it. Fast food jobs are great for this.
He will need to know about the money! If he applies for financial aid at a college, it must be listed or he is committing fraud (although he likely would not know it). #3 had a good method using a living trust. But your son really would control it.
I would check with a lawyer if you could set up a separate trust that you really control. I would expect you could do this for a “special need”. This is usually done for children with special medical or mental issues.