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Here's something to consider:

A tax-efficient mutual fund, owned by you as custodian for nephew, UGMA. An S&P index fund, properly managed by the mutual fund co., ought to have fairly low current taxes, because of the small number of portfolio transactions. Whatever income there is gets reported to him, not you, and he'll be below the 1040 threshold for quite a while, given the size of the fund you're talking about.
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