Executor: Need to find suitable savings for childrens' legacy

Primrose

As Executor, I shortly need to set up safe savings accounts for some children. The Will specifically requests that the money should be held in trust until they are aged 21. Does anybody have experience of good Building Society accounts which will cater for this requirement? There will be 2 trustees, including myself.

dunstonh

Trustees have a legal responsibility to do what is best of for the beneficiary. This also involves being seen to be doing the best. Is sticking the money in a building society account the best thing? If the beneficiary is young, then this could end up being a poor choice and the beneficiary could take legal action later on if they feel you have not acted in their best interests. And the way this society is going compensation crazy, you couldnt rule it out (plus it does happen already).

jamesd

Assuming that RPI inflation is 4% and you're able to get a savings rate that's 80% of inflation - 3.2% and that the money is under your control for 10 years you'll manage to reduce the value to 92% of where you started. You can easily do worse than that if you stick to these accounts.

Even quite cautious investments are likely to achieve 7% a year and that would leave the value at 1.33 times the initial value with the same assumptions as before.

If the term is going to be more than five years it's hard to see how you can look after the money properly without using investments, not savings accounts, then start to switch increasing proportions back to near-cash in the few years before they reach 21.

How much is the total value of the trust? It sounds, if the value is more than 10,000 or so, perhaps regardless, that you may need to get professional investment advice to properly fulfill your responsibilities. If the value is 100,000 you should have little trouble finding an investment manager who will handle the day to day investment work for 1-2% initially and half a percent each year for ongoing adjustments. The pro should be able to comfortably exceed 7% and more than pay for the cost of the service - and would have to document the investment process anyway, because that's one of their own regulatory requirements. An IFA is also financially liable if they give incorrect advice (though not if it happens that the advice was correct but the investments did poorly even so). That can help to protect you.

Primrose

The situation is complicated. One child will be 18 later this year. One is 16 and the other is 12. Thus one trust fund will only run for 3 years, one for 5 years and the other for 9 years so equities investment will probably only be suitable for the youngest. Each fund will be worth around £4K- £5K. The beneficiary specifically did not want any child to have access to the money before the age of 21. Also a "safe" investment was specified, which really rules out equities.

dunstonh

Also a "safe" investment was specified, which really rules out equities.

Not necessarily. A guaranteed option may be required although a low risk spread could satisfy the "safe" requirement. Unless you beat inflation, then a savings account isnt safe either.

jamesd

Primrose, if it specified '"safe" investments' rather than "savings accounts" or "bank accounts" then some level of investment risk seems to have been specified, unless you know that the person leaving the money was misusing the word "investment" when they meant "savings". If I'd specified the use of investments and savings accounts were used I would not consider that my wishes had been followed.

At the lower end of the risk mixture you have corporate bonds, property funds holding real property (in Europe and UK), and nearer the middle UK equity income. A combination of those should meet a safe requirement and still comfortably exceed savings account returns. Given the timeline this would provide ample secure near-cash money for the first while providing higher growth potential for each of them.

For the 18 year old it seems reasonable to ask about attitude to risk and see if they have any views on the matter, then take that into account as part of your decision-making. Not just follow it, but factor it in. If the answer is "savings accounts" or "emerging markets" you've received a pretty clear indication of how that beneficiary would regard each decision. Emerging markets won't meet your obligation to be cautious, but will let you know that some equity risk and growth potential is desired.

I've recently been discussing setting up a discretionary trust for a family member where I may be one of the trustees, so I can understand at least some of your likely concerns about the obligation to look after the money of someone else and do the best you can for the children.