Trust Fund Query

AFIOM

Would be extremely grateful if anyone can help with this problem regarding Trust Funds.
My sister and I have become trustees for her grandson (age 14) due to my nephew having died and his wife having died previously. We have a trust deed drawn up by a solicitor which names my late nephew as the "settlor" and his son as the "Beneficiary"

Our problem lies with how best to hold the money until the child can inherit it at age 18, and in the way we go about doing this. (There was no will so this is why it us age 18)

We have considered various options of investing the money in Stocks & Shares, Investment Bonds, Stock Market Linked Savings Accounts etc (presented to us by the banks), but choose not to risk doing this, opting instead for a savings account/bonds to preserve the capital even though we realise there will be little growth and the interest earned will be less than inflation. We have been told that if we take the savings option we will need to pay tax at 50% on the interest.

We have spent two months visiting various banks/bldg societies, but keep receiving unhelpful & conflicting information.

The money is currently in a bank in a standard current account which is titled "Trustees Of....(Childs Name)..." The bank is awaiting our instruction as to how much we want to put into a fixed term bond. The reason for this delay being that the value of the fund exceeds the £85K per institution which is protected by the FSCS so we need to split the funds and are trying to find another bank/bldg society to use as well.

Some banks say that they can only open an account for us in the childs name, but given that he cannot access the funds until he is 18 this doesn't seem right. Also we do not know if this is acceptable to HMRC with him being a child and it not being an ordinary Child Trust Fund. (I have written to HMRC)

Some banks suggested opening an account in my name and/or my sisters, but we do not think that this is right as we both have our own tax implications.

1) Does anyone know which is the correct way of doing this? whose name should the account be in?
2) Does anyone have any other suggestions for investing the money that are fairly risk free. Many Thanks

Reaper

AFIOM wrote: »

We have considered various options of investing the money in Stocks & Shares, Investment Bonds, Stock Market Linked Savings Accounts etc (presented to us by the banks), but choose not to risk doing this, opting instead for a savings account/bonds to preserve the capital

Firstly you have to realise savings accounts are unlikely to preserve the capital. Unless you can find one paying more than the rate of inflation its value will be falling every year.

By the sounds of it you have a large sum to deal with. If it were me I would invest at least part of it to try to retain its value, but that is up to you.

We have been told that if we take the savings option we will need to pay tax at 50% on the interest.

That does not sound right. If you open it in your names you would pay your own tax rate on it, if it is in trust for the child in their own name then it is taxed at their rate (usually 0%) except when parents put in the money in which case it is taxed under their affairs as soon as the interest paid hits £100pa.

We have spent two months visiting various banks/bldg societies, but keep receiving unhelpful & conflicting information.

Why not start with the child savings article on this site:
http://www.moneysavingexpert.com/savings/child-savings-tax-free

Some banks say that they can only open an account for us in the childs name, but given that he cannot access the funds until he is 18 this doesn't seem right.

You would operate the account as trustees. You don't want it in your names or you would have to pay tax on it.

Also we do not know if this is acceptable to HMRC with him being a child and it not being an ordinary Child Trust Fund. (I have written to HMRC)

It is.

Some banks suggested opening an account in my name and/or my sisters, but we do not think that this is right as we both have our own tax implications.

You don't want to open it in the child's name or your own name? That doesn't leave anything!

1) Does anyone know which is the correct way of doing this? whose name should the account be in?

I believe it should be the child's name with you as trustees i.e. the ones who actually operate the account. Tell the bank it is a "Will Trust" (if that is what you have).

2) Does anyone have any other suggestions for investing the money that are fairly risk free. Many Thanks

What age is the child? If they are 7 or more you could put £15k of it in NS&I Index Linked paying RPI + 0.5%

Junior ISAs are coming out later in the year so look out for them to see if they are any good when they arrive.

Personally I think you ought to be investing part of it as investments ought to outperform savings over the long term.