Saving for a child? (Not comfortable handing over at 18)

Jake_Armitage

Hello, i'm hoping for some advice from you good people about saving for a child.

I currently save monthly for my one year old child into a childrens saving account. The account pays 3%, the best around at the time I was looking (not sure how they are now) and he already has a very healthy balance. However with my head in the clouds over becoming a father I didn't really pay much attention to the little fact that when my son turns 16-18 he will get full control of the account.

Now I don't want to come across as a controlling dad but i'm not very comfortable with that fact considering how much is in there at the moment with the intention to grow it further. I would like the opportunity to be able to hold the money back for a few years if junior isn't money smart enough.

Give an 18 year old a good few grand and it will more than likely be wasted on rubbish! I've seen it happen with family members. I've heard some right horror stories about teenagers falling in with the wrong crowd or falling in love and like vultures helping them blow the lot and then leaving!!! I would be sick to my stomach if I have saved up for his whole childhood hoping it will go towards his education or his first house deposit and then it is all for nothing.

Am i over-reacting? Should I carry on saving in the childrens account and hope my child does the sensible thing with his savings?

Or should I open a seperate saving account in mine and my wifes name and save in that? I understand that the interest may suffer but it may be best to give the money that bit more sercurity and it also gives us the right to decide when we should give this money to our son when we see fit. I already have an ISA bit i'm keen to keep my own savings and my son's seperate so they don't get mixed up.

Also, would I even be allowed to withdraw the current savings which is under my sons name with myself being trustee, and put it all in this new account which on paper won't have anything to do with my child?

I hope all this makes sense. Just looking for a bit of advice and some pointers. Thanks.

atush

Personally I don't think you are over reacting. It think this is the major fault with the new junior ISAs. That they become the childs at age 18. While my 3 did have cash savings accts, I didn't allow access to them until after age 18, in the summer before university. If I had changed the accts at age 13 and allowed access, I am not sure that money would have been there for them to spend at UNI.

You have another thing to think about- and that is saving in cash, esp at todays rates means every 100 you put in is going to be worth only 98 or so the next year and keep dropping due to inflation. You need to think about saving into equities over a period as long as 17 years.

As far as I see you have a few options. Keep the money in children's savings accts, and just don't ever tell the child about it. Open another acct to put in b'day and other money that they child knows about. How are they going to know if you don't tell them?

Put the money (or any future monies) into a seperate savings acct in your name and you will pay the tax on the interest as part of your income but will have full control over it. Or set up the acct as a Bare trust with the child as designee.

Thrid I would consider saving as I do for my own children. I save monthly into their cash acct as part f their pocket money (half in acct, half to them in cash) but they have to do chores for it. The other way I save is to put an amt into an investment trust savings plan. This is invested via direct debit and each month shares inthe unit trust are bought with the money and held in the acct. All income is reinvested. This grows over time into a nice tidy amount. Using pound cpost averaging, it helps during periods of market volatility to keep investments on track.

And at age 20, my eldest still is designee and I am the acct holder. I will change the paperwork when he is 21 into his name and stop contributing.

opinions4u

A way I got round it was a bare trust with Alliance Trust, combined with accidentally forgetting to mention the money to my 18 year old until he was 20, a tad more mature, and in need of a car.

It was a slight breach of my responsibilities as a trustee, but it did the trick!

(and I agree with the hint above to move the money away from cash and in to investments).

atush

Then I am also in breach lol.

But the money is there for thm and I have allowed the 20 yr old to make his first withdrawal ever last week to pay for next terms spends at Uni ;-) I hardly think they will turn me in.

xylophone

Also, would I even be allowed to withdraw the current savings which is under my sons name with myself being trustee, and put it all in this new account which on paper won't have anything to do with my child?

No - this money is your child's absolutely even though you are the bare trustee.

I'd encourage you to have a look at http://www.hmrc.gov.uk/trusts/types/minors.htm
http://www.hmrc.gov.uk/trusts/types/minors.htm
http://www.moneysavingexpert.com/savings/child-savings-tax-free?utm_source=forum&utm_medium=clicks&utm_campaign=resourcebar http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10014128
http://www.hmrc.gov.uk/tdsi/children.htm

If you do not want to give your child access at the age of 18, you might simply consider your ISA or perhaps your wife's ISA as 'earmarked' for your child/children, using the funds as and when needed?

Jake_Armitage

Thank you for the replies. They are much appreciated.

I have considered just keeping the money in the account and not telling my son about it but the problem would be with the bank sending annual interest statements with his name on them! If I wasn't quick enough he could one day open the letter and know all about it well before even becoming a teenager! I think as it stands he has control of the account from 16 and full right to withdraw at 18.

I already have plans for a seperate savings account that he can put his birthday money in and he can be taught how to save for himself.

I'm not so sure about the investments suggestion. I'm not clued up on this subject but must say I don't want any risk with this money. I would like to learn more about how to get the most out of savings though.

From what I have read about a bare trust, the money is locked away until the beneficiary is 18. Can you add to the amount held in these trusts? Also at 18, like the account I currently have for my child, you lose control, so how did you keep it secret longer? Any letters through the post addressed to your child telling them how rich they are?

xylophone, the account currently allows withdrawals so surely I could do what I wanted with it? It isn't a trust atm.

atush

Your cash will also be at RISK. Shortfall risk (as it grows more slowly) and inflation risk as it is nibbled away at each year.

If inflation is 5.5% and you are getting 3% then it is shrinking by 2.5% a year. After ten years, 25% of the buying power of the money is gone.

I think if you move the cash from one acct to an acct where the child is designee it may be within rules. But not sure.

jonnyb

Don't let the apparent complexity of investments put you off getting the best return for your children.:eek:
I admit to being confused by investment funds, but I'm completely happy in buying individual shares and cutting out the middle man.:j

I know that an investment fund may well lead to a more diversified risk, but why would I want to pay someone to manage that for me and take a % each year ?:p

We are using my wife's ISA allowance, as we would never use it otherwise. Using selftrade (but others are equally simple) to do regular investment. £100 per month to but shares in one company at a time, changing every 4 to 6 months. Re-investing all dividends as well.

We are picking what should be "safe" and "blue-chip" type companies, which should all pay decent dividends - like Vodafone, Aviva, United Utilities. Astra Zeneca, Glaxo Smithkline, even a small risk with Barclays, and lining up for the future ones like Sainsburys, Royal Dutch Shell, Tesco.

xylophone

xylophone, the account currently allows withdrawals so surely I could do what I wanted with it? It isn't a trust atm.

You said that it is in a children's account - presumably, as the child is so young, "Jake Armitage re baby Armitage" - this makes it a bare trust - if so the money is the child's absolutely - see http://www.hmrc.gov.uk/trusts/types/bare.htm and http://www.hmrc.gov.uk/tdsi/children.htm for information re R85 and what happens at 16 to this type of account.

In respect of parental trusts for children see http://www.hmrc.gov.uk/trusts/types/minors.htm and http://www.parmentierarthur.co.uk/pdf/july09article.pdf

You can set up a discretionary trust see above link for explanation but strict rules apply re capital and income.

All in all, in view of your concerns, you might be better off "earmarking" in your own mind either your or your wife's ISA allowance and using the money therein as appropriate when your child reaches university age.

Jake_Armitage

I have spoken to my wife and we have decided to "earmark" her ISA for junior as she only uses it as an easy access account. It currently has 49p in it!!!! I will then set up an actual easy access savings account to suit her current needs. I have been on at my wife for a while now to change her ISA because the interest rate will be so low so now I can do it. :T

This gives us the full control we desire and i'm very happy with that. With withdrawals being allowed from the children's account I should be able to get the money out of there and into the ISA. In our minds the money is the child's absolutely anyway. I'd take out a million bank loans before I ever touched a penny of my child's saving.

Thank you for all the advice. This forum is an amazing hub of financial knowledge. :beer:

Sandrock

I don't want children, but I put money aside for my niece.

Rather than put it in a specialised account, I put it in a generic savings account in my name so I will retain complete control until I want to pass it across. Niece's mother is no good with money! It is currently achieving about 3.4%.

My plan is to 'drip feed' the money from 14 to 21. Rough calculations suggest

£500 at 14
£1000 at 16
£3000 at 18
£3000 at 21 (If she's sensible with money I'll give her the whole balance at 18)

Like you, I couldn't stand the idea of handing over a few thousand for it to be blown all at once on a whim. I would imagine it'd be much worse if it was your own child and the amounts were correspondingly greater!