Investing Inheritance for Children

zarazag

Hi - our children have each inherited £10,000 to be invested until they are 25 - they are currently 10 and 11. Sooooo where to invest the money wisely for them - I have looked on one high street BS and the best rates are on an e-bond - but I understand it needs to be invested in in a discretionary trust fund so as not to potentially count as our tex threshold? Is this possible with an e-account.

or, any suggestions on where to go with this as my brother and I - his grandchildren have also inherited some money, are going round in circles with this and really not sure what to do as don't them to lose their money

thanks
j

Reaper

zarazag wrote: »

I understand it needs to be invested in in a discretionary trust fund so as not to potentially count as our tex threshold?

Partly right. I have been looking into this recently for investments rather than savings but the principles are similar:

Designated Account: effectively you open the account in your own name. Building Societies sometimes let you add "Re" on the end of the account name (eg "Mr John Smith Re: Mark Smith") though it is meaningless legally. The money belongs to you, and is taxed under your tax affairs. The only advantage is complete control over the money - you don't even have to spend it on the child if you don't want to.

Bare Trust: The simplest form of trust. The money belongs to the child and is managed by trustees until they come of age. Though beware even so if the parents have put in any money and the interest earned comes to over £100 the whole lot is taxed at the same rate as the parents. Therefore this option is best for gifts from other relatives or inherited money as in your case. Any money withdrawn must be used for the child's benefit or moved to another similar account.

Discretionary Trust: Much the same as a Bare Trust if you need to do something more complicated, for example several children may be involved and you want the trustees to be able to decide as they go along who will recieve what money when. A solicitor will inevitably get involved.

I have been rather surprised at how flexible the Bare Trust is. In my case after a lot of research I have decided to invest though Baillie Gifford. They will set up the Bare Trust for you (some other less customer friendly investment companies expect you to arrange it with a solicitor) and it does not even have to stop at 18. You could specify any age you want while still having the option to withdraw it and hand it over if they turn out responsible at 18 [* but see below].

I can tell you less about savings accounts but I believe they will set them up in trust for you too. You may well find them less flexible and insist the money goes to the child at 18 - check with the individual bank or building society. Personally I would not touch them as over the long term (and for kids it generally is the long term) the stock market ought to out perform savings.

EDIT:
* Although Baille Gifford confirmed to me over the phone that you can keep the trust running past 18 years old I just saw another web site saying an 18 year child can demand to have the money and the trustees can not stop them. Mind you even if that's true I guess they have to know it exists before they can withdraw it!!

Primrose

My advice to any parent investing an inheritance for children is to keep them totally in the dark about it until you decide it's a suitable time for them to have the money. Not only will it be a delightful surprise for them, it will temper their attitude to money and hopefully prevent them from thinking they can have an easy ride as far as taking responsibility for saving for themselves is concerned. But make sure you leave a note of the account with your Will and your Executor/s so that if something happens to you, they money doesn't disappear into a big black hole.

evenasus

All post by 'sheryldaniels' reported as SPAM.

katyk_2

Watching this thread with much interest as I have much smaller sum of about £4.5k to invest between 2 children aged 14/16. Would like something I could continue to add to monthly (prob about £50/mth)

katyk_2

Primrose wrote: »

My advice to any parent investing an inheritance for children is to keep them totally in the dark about it until you decide it's a suitable time for them to have the money. Not only will it be a delightful surprise for them, it will temper their attitude to money and hopefully prevent them from thinking they can have an easy ride as far as taking responsibility for saving for themselves is concerned. But make sure you leave a note of the account with your Will and your Executor/s so that if something happens to you, they money doesn't disappear into a big black hole.

Unfortunately I would have to agree with that having known of a couple some years ago who had a large sum of money invested which would go to their son when he turned 18. By the time his 18th was approaching the boy was becoming heavily into drugs and his parents tried desparately to stop him from getting the money - thye did not want it themselves, just to stop him getting it at that time as, at best, he would squander it and at worst he could kill himself. They got nowhere - the money was his at 18 and they had no say.

Reaper

katyk wrote: »

Watching this thread with much interest as I have much smaller sum of about £4.5k to invest between 2 children aged 14/16. Would like something I could continue to add to monthly (prob about £50/mth)

The one I mention above starts at £25pm.

Vincenzo

katyk wrote: »

Unfortunately I would have to agree with that having known of a couple some years ago who had a large sum of money invested which would go to their son when he turned 18. By the time his 18th was approaching the boy was becoming heavily into drugs and his parents tried desparately to stop him from getting the money - thye did not want it themselves, just to stop him getting it at that time as, at best, he would squander it and at worst he could kill himself. They got nowhere - the money was his at 18 and they had no say.

Whilst I will work hard to ensure my kids turn out to be responsible adults, this kind of scenario does worry me. I know if I was given a lump sum at 18 I would have gone out and bought a sports car!

Hence why I have shunned all forms of trusts, except for the freebie voucher on the CTF.

As my wife does not utilise her S&S ISA we use that to invest for them in the medium-long term. It remains tax free and can be used for them or given to them as we please in future.

Granted it will be within our estate for IHT but I feel that is the lesser of the two potential evils.

juliew1970

Hi, I am new to this so please bear with me!

I have a similar quandary. My 10 year old son inherited £34k last year from his late father. This was eventually transferred into an account by the solicitors in the names of myself and my son's paternal grandmother. We were given no rules or guidelines as to how to use or invest this.
Both my son's Grandmother and I would like to be able to invest some of the money (say £10k or so) in a property. My partner and I have a similar amount to invest. We would look to rent out the property for a profit or sell on (if decent profit to be made). Obviously we would split the profits of either rental income or resale profit.

Is this legal or possible? At the moment, the money is in an account earning 2% and could earn much more than this. What are the tax implications?

Please help!

jennifernil

I know nothing about investments or property, but just wanted to say that 2% is a pathetic rate. You could for instance put the money here.......

http://www.halifax.co.uk/savings/accounts/longer-term/guaranteed-reserve/

This account is open to children.

Primrose

juliew1970 wrote: »

Hi, I am new to this so please bear with me!

I have a similar quandary. My 10 year old son inherited £34k last year from his late father. This was eventually transferred into an account by the solicitors in the names of myself and my son's paternal grandmother. We were given no rules or guidelines as to how to use or invest this.
Both my son's Grandmother and I would like to be able to invest some of the money (say £10k or so) in a property. My partner and I have a similar amount to invest. We would look to rent out the property for a profit or sell on (if decent profit to be made). Obviously we would split the profits of either rental income or resale profit.

Is this legal or possible? At the moment, the money is in an account earning 2% and could earn much more than this. What are the tax implications?

Please help!

I think you need to find an accountant to ensure that you don't fall foul of the tax rules. Minors can't invest in property and even if a property is bought through a trust, there may be tax complications. I'd personally be wary of going this route because the trustees could get involved in a lot of administration, and you would need to consider what you would do if a property was let out and somebody trashed the place or defaulted on the rent.
I'd also beware of mixing up inherited money in with money you and your partner are prepared to invest. There could be all kinds of tax complications on which you are unaware and if you and your partner ended up splitting up, administration of the whole thing could become a nightmare.

I'd also investigate whether the money could be tried up for a six year period initially, after which your child would be 16 and reach the age whereit could gradually be invested in an ISA in his name, which would then be tax free. Otherwise, I'm pretty sure the capital sum will be taxable in some way.