Help Kids Save for All Possible Futures: Fabric CEO

Adam Erlebacher would like to see financial professionals take a more flexible approach to financial planning for children.

Today, advisors and planners tend to focus on offering 529 plan accounts and other college savings accounts, which can be used for educational expenses or, eventually, flow into Roth IRAs.

Life and annuity professionals may talk about the benefits of using cash-value life insurance as a somewhat more flexible long-term savings vehicle.

Erlebacher, the CEO of Fabric by Gerber Life, has another idea: Encourage parents to put at least some cash into investment accounts based on the 67-year-old, even more flexible Uniform Gifts to Minors Act framework.

UGMA funds “can be used for any expense directly benefiting the minor,” Erlebacher said in a recent email interview. “Whether it’s their first car, travel, band equipment, astronaut camp, after-school programs, or future educational costs, 100% of the funds deposited can be used towards the betterment of the child. When they become adults, funds from a UGMA account could help them buy their first home or pay for their wedding.”

What it means: Conscientious clients are using special kinds of accounts to save for retirement, health care and children’s college costs. Now, there’s a new push to help families save for other kinds of foreseeable costs.

Uniform Gifts to Minors Act accounts: UGMA accounts are organized under state laws that differ from jurisdiction to jurisdiction.

Gerber Life emphasizes in a discussion of the tax rules governing UGMA accounts that it can’t give tax advice and that parents interested in UGMA tax provisions should talk to their tax advisors.

The federal income tax breaks for UGMA accounts are not as extensive as the tax incentives for 529 plans.

But, for a child who has all assets in one UGMA account, the first $1,150 of unearned income from the account will be free from federal income taxes, and the next $1,150 in unearned income will be taxed at the child’s rate.

For typical children, “there are no taxes paid each year, or taxes will be much less than in a standard investment account,” Gerber Life says.

Fabric: Fabric began selling affordable, protection-oriented life insurance to families through digital systems in 2015.

Western & Southern Financial Group, the parent of Gerber Life Insurance, acquired Fabric in 2022.

Gerber Life is best known for selling permanent life insurance for babies to the babies’ parents and grandparents.

Fabric’s UGMA program: Fabric recently added an online investment program based on a traditional Uniform Gifts to Minors Act framework.

Fabric charges $3 in fees per child per month, or $5 for all children in a family per month.

Parents can feed as little as $1 per day into the UGMA accounts through automatic contributions. Multiple individuals can contribute to the UGMA account.

“The experience was designed for parents to enable friends and family to contribute,” Erlebacher said. “We’ve had customers whose first action after opening an account is to send a gifting link to family members, so others can also contribute.”

Fabric encourages parents who set up the accounts to buy life insurance and use a digital will-drafting tool.

The value: In the email interview, Erlebacher suggested that the UGMA program is good for the parents and the financial professionals as well as for the children.

For the parents, he said, setting up a UGMA account can be part of a planning process that includes buying life insurance, writing a will and taking other steps to lay the groundwork for a solid financial future.

For the financial professionals, a UGMA program is a way to grow prospects.

“By prioritizing products that enable kids to become financially savvy, agents and advisors are helping to build the investors of the future,” Erlebacher said.

Adam Erlebacher. Credit: Fabric by Gerber Life