Junior ISAs warning – beware using them to save for college funds blog discussion

PollyFlinders_3

jamesd wrote: »

One potential significant advantage is that the money belongs to the child. That presumably means that it is protected from benefits means tests and parental bankruptcy.

I don't know about bankruptcy but when my OH was made redundant we had to declare all money in our children's bank accounts, as well as any money we had, when claiming JSA/Income Support, and it was all counted as our capital, therefore reducing any eventual claim.

I also have a friend whose teenage child is withdrawing savings from her own account and giving them to the less than delightful OH because they are "in love" or alternatively to feed his habit...

You can teach your children your own attitudes and values towards money but nothing and no-one can make them follow your example.

Personally I started saving for a college fund using my own ISA allowance, which means the money is mine and I can choose what to do with it. Having saved for a few years and built up a nice lump sum, we're actually using a lot of it to pay off our mortgage early - if we time it right it'll just about be paid off before the oldest is 18 so we'd have no monthly mortgage payments but could use this money to put towards college expenses.

There are pros and cons either way, but I felt retaining control over what is going to be quite a substantial pot of money was more important than an extra tax break.

deeplyblue

We have 2 sons, both always needing more money when they were teenagers. We needed more money when they were teenagers. They were brought up pretty much the same as regards money education.

There was a job going with an abysmal rate of pay (forget figures - cashier at a bingo hall) which barely paid for the bus fare to get there. One of them said "not worth it" - partly because of the finance and partly because he had a girlfriend and a social life and a feeling that he shouldn't have to do demeaning stuff.

The other looked at the cost of the bus and walked there (nearly 2 miles) instead.

One always had a list of things that he "really needed" - from good trainers to the price of night out, and borrowed to hilt. One had one thing at a time he "really needed" - like a replacement for the musical instrument for his main hobby - and when he had the £££s required, he bought it.

Some people (adults as well as kids) "get" deferred gratification, some don't.

Some people who do get deferred gratification can apply to concept to university fees or paying off the mortgage, while others can only manage it for new electronics. (Puts up hand )

You can usually find out which sort you've got when they reach the age of about 7. Choose their favourite treat - offer one now or two later. First time you try that, they'll take one now and reckon to nag you into giving them the second later. Don't. The second time you try it they'll know you mean it. See whether they can wait. THEN you'll know whether they'll be sensible later.

I confess I wouldn't want to give them the money at 18 though. Much better let them build up the debt and then get the money to pay it off at 21. However, the "Children's ISA" matures at 18 so you've not much leeway there.

Here's an idea. If you think you're going to go bankrupt, then this wouldn't work, but ...

This is based on the premise that in long term stocks and shares beat cash returns. So put the money that you are saving into a Cash ISA, but put the "college fund" into a Stocks and Shares ISA in your name, which can be "liquidated" at whatever time you feel is suitable.

This doesn't protect the fund from being counted as part of your assets, but does provide some separation for your funds and the "college funds".

Another idea is prompted by something I once read on the Motley Fool site (before, I think, it became Love Money) where the author was extolling the use of grandparents as a way of managing money for children. Some of us have rued the way in which grandparents can affect a child's attitude to money, but most grandparents are at least as sensible as their children! I can't remember exactly how things worked, and it's probably changed again anyway. However, if you have parents who want to help out their grandchildren, then the college fund - perhaps in a ISA wrapper of one form or another - might be one answer.

Just make sure that you can talk sensibly to them about how it is left in the case of their death (when any ISA protection will end) so that the children get all of that fund with any IHT coming out of the rest of the estate.

deeplyblue

PS to previous post:

When you are doing long-term financial planning for your children, check that your own affairs are in order, so that the "college fund" is protected in your will. If you die without leaving a will, your partner and/or children could face real hardship whilst the estate is wound up (and I've seen this recently) and certainly any funds you have will be left in a mess as a result.

And don't go for a home-made will. I've just been through a year of the problems left by a home-made will. It seemed a textbook case where someone followed the instructions in a respected guide to make a simple will. He made only a couple of mistakes - he omitted the middle name of one of his executors. The identity was never in any doubt to anyone who knew them, but the executor's usual signature included a middle initial, which didn't appear on the Grant of Probate. Problem.

Secondly he left the spaces for the signature of the witnesses above the space for his own. They probably did sign after him, but above, rather than below. Did the Probate Office like this? You guess - we almost faced a situation where the estate would have been declared intestate with results which would have been far from his intentions. In any case, the solicitors' time and trouble sorting this out cost a great deal more than the cost of drawing up the simple will to start off with.

Not mind you that solicitors always get it right, do read the small print before you sign the document!

BadgerMatt

There is currently a government consultation out on this. Are MSE planning to respond? I am and I suggest everyone else here does too. I'll post the details below.

The best outcome so far as I can work out would be to be able to combine the tax free advantages of the junior isa with the old fashioned trust. That way, the money is your child's (as beneficiary) at the age of 18 and the parents cannot touch it. However the parents, or whoever else might set up the trust could direct that it can.only be used for certain purposes e.g. for education or a house deposit. Someone would be appointed trustees (maybe the parents, maybe a trusted third party) and when the child wanted the money post 18 they would have to ask the trustees, showing that it would be used towards the purposes which it was originally set up for, and the trustees would need to say yes or no according to the terms of the Trust. I don't see any argument for not allowing this sort of arrangement to be tax free as the money cannot be used by anyone but the child, the only difference is that the parents can stop them uusing it on certain things.

Maybe this will be possible anyway, I don't know but if so it won't just be a case of popping down to the bank and opening an account, solicitors would need to be involved.

I'm not allowed to link to the consultation on here but you can find it by going to the HM Treasury website and searching for junior isa

Send your comments to Rosemary.Ohen@hmtreasury.gsi.gov.uk by the end of May

Mary_Hartnell

Reducing the age, at which the beneficiary had to come into their "inheritance" from 25 to 18, if capital and income tax surcharges were to be avoided, was just plain daft.

Nice one Gordon Brown.:(