How best to save for a child that is not mine?

Angelica_ca_ca · 16 May 2017 at 7:56AM

Good Morning All,

I am looking to start saving for my, relatively new born, god child. I currently don't have a lump sum to invest into savings so I will be looking to start from £0 and save until the child is 18 or 25.

Please can anyone advise how best to go about doing this?

Many thanks in advance.
Angie

AnotherJoe · 16 May 2017 at 9:09AM

There are two approaches.
1. Get parents to open a child savings or investment account and then you pay into it (over this timescale, investment is likely to produce much higher returns)
2. Open an account in your name (again, savings or investment) and save into it.

Upside of (2) is that you can pay the money when it's appropriate. E.g. If you think child will go wild at 18 you can hold it back. With option 1 it's theirs at age 18 irrespective.

You can also consider tax wrappers, for example I am doing option 2 In a SIPP. That way junior gets a tax uplift. Junior is also in the will so this sum goes to them should I predecese.

Westie983 · 16 May 2017 at 10:33AM

I have used regular savers for this, as the amount saved each month could vary and each year when it matured, I put it into a fixed account for each child and then add to it each year when the regular saver matures, so the money is earning interest in both places, and I have freedom to move it as I need depending on interest rates, and decide when I will give them the money, as with a JISA, its their money at 18, (they dont have one as they have CTF, and parents are not that bothered)

xylophone · 16 May 2017 at 11:01AM

The parents could open a JISA and you could contribute a regular amount.

https://www.gov.uk/junior-individual-savings-accounts/overview

They might choose to split the allowance between cash and stocks and shares.

Suppose, for example, they decided on a 10/90 split - perhaps you might be responsible for the cash 10% and set up a SO for £34.40 a month?

The highest interest rate is currently offered by Coventry BS.

http://www.thisismoney.co.uk/money/saving/article-1583863/Best-savings-rates-Junior-Isas-children-s-accounts.html

Angelica_ca_ca · 16 May 2017 at 5:56PM

Thank you for all your responses.

I really wanted to set it up without the parents involvement.

Has anyone ever considered a bare trust or know anything about them and whether that would work?

Thanks again :-)

Snakey · 16 May 2017 at 8:06PM

Just set it up in your own name and hand over the cash as a present whenever you consider it appropriate.

I know it will seem impossible to think this today, but eighteen years is a long time. By the time this kid is 18 it may be the case that you haven't seen or heard from him* or his parents for a decade... or he could be a drug dealer... or you might have four children of your own and be struggling to make ends meet... will you still be as bothered about buying this lad a motorbike?

I had the same sort of thought process when my oldest nephew was born. I'm glad, now, that I didn't make a big song and dance about my intentions, since he has five brothers and sisters and I'd have had to do the same for all of them, not to mention that we hardly ever see each other and even then it's only when I make the effort. He also gets spoiled rotten by his parents and the money I'd have given him wouldn't have been the big deal that I'd fondly imagined it would be (all those years ago, when I was about the age that he is today and a hell of a lot less well off) because he has everything he wants already - car, foreign holidays, tech. In the end I put the money towards my flat instead, and nobody was any the wiser.

For a timescale of 18-25 years you want an investment rather than savings, as the latter will lose value in real terms. For regular payments I'd open a stocks and shares ISA, invested in a passive fund so that you can just forget about it.

*or other pronoun.

Angelica_ca_ca · 17 May 2017 at 8:07AM

Thanks snakey that might be a better way of doing things :-)

Biggles · 17 May 2017 at 8:40AM

Angelica_ca_ca wrote: »

Has anyone ever considered a bare trust or know anything about them and whether that would work?

Bare trusts absolutely work. I have set one up for each of my grandchildren and use F&C. This link explains all about it http://www.fandc.com/uk/private-investors/savings-plans/savings-plans-range/childrens-investment-plan/. I'm not recommending F&C over others, it's just the one I use. Bare trust means that the child is the beneficial owner, though you, as trustee, are able to use the funds for the child's expenses should you wish.

There's normally no need to bother with an ISA, esp if it entails higher costs, unless your investment is going to be very substantial, as children get the same personal tax allowance as an adult (there are restrictions where money is invested by their parents but not by other friends/relatives).

I certainly see Snakey's point about making your intentions known. I was clear with their parents about what I was going to do; had I known there would be six grandchildren, I might have kept it quiet but now I just have to bite the bullet and treat them all the same!

AnotherJoe · 17 May 2017 at 8:54AM

Biggles wrote: »

Bare trusts absolutely work. I have set one up for each of my grandchildren and use F&C. This link explains all about it http://www.fandc.com/uk/private-investors/savings-plans/savings-plans-range/childrens-investment-plan/. I'm not recommending F&C over others, it's just the one I use. Bare trust means that the child is the beneficial owner, though you, as trustee, are able to use the funds for the child's expenses should you wish.

There's normally no need to bother with an ISA, esp if it entails higher costs, unless your investment is going to be very substantial, as children get the same personal tax allowance as an adult (there are restrictions where money is invested by their parents but not by other friends/relatives).

I certainly see Snakey's point about making your intentions known. I was clear with their parents about what I was going to do; had I known there would be six grandchildren, I might have kept it quiet but now I just have to bite the bullet and treat them all the same!

When you say "they work" in what sense do they work? Seems to me you lose out on flexibility (especially if you have a child that's "gone off the rails") and most of the benefits that that link mentions are equally applicable in an ISA.

There are downsides to ISAs in this context, such as if there are multiple children you would have to segregate the money inside it yourself, since you cannot contribute to multiple ISAs in one year, but I'm not convinced that a bare trust brings any other additional benefits, the trust in that link for example has a very restricted range of investments (just 10) and I suspect they will also all be relatively high cost ones.

As for no need for an ISA I'd say balderdash, 18 years out, without an ISA, capital gains tax could be a problem, plus an ISA means you can dispense with record keeping.

Reaper · 17 May 2017 at 9:06AM

AnotherJoe wrote: »

the trust in that link for example has a very restricted range of investments (just 10) and I suspect they will also all be relatively high cost ones.

Actually no. The flagship fund "F&C Investment Trust" has an Ongoing Charge of 0.79% which is a bargain.

Plus the Annual plan fee (same for both JISA and Bare Trust) of £25 + VAT irrespective for which fund(s) you invest in.

Redski69 · 17 May 2017 at 10:37AM

Angelica_ca_ca wrote: »

Thank you for all your responses.

I really wanted to set it up without the parents involvement.

Has anyone ever considered a bare trust or know anything about them and whether that would work?

Thanks again :-)

Yes, and the beauty of the Bare Trust is you have a Trust Deed where you can specify the gift date etc, the trustees etc too ... and it means you don't pay any tax on the income they make either, which in the aforementioned proposal - you would do if it isn't inside a Tax Wrapped product like an ISA.

Hope it helps ...

How best to save for a child that is not mine?

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