Children's saving accounts

Borrowedtune

I set up IT savings plans with F&C and Aberdeen years back when each of my two were born.


Upsides: decent performance, low cost, and I've started involving the older one (now 12) in managing it, so it's an opportunity to add to her financial education


Downsides: limited choice of investment options; I'd really like a single platform that allows a range of choice across different Trusts/ funds

xylophone

Tax position

http://www.taxbar.com/documents/Bare_Trusts_Nicola_Shaw.pdf
might be worth a look.

ANGLICANPAT

That link was extremely interesting thanks xylophone. The clearest Ive read. Once Id decided on the Fund I wanted within Baillie Gifford, I read the BG options on holding it as a trust --(choose from a Designated trust, or a Bare trust ) and decided that as I wanted for tax efficiency,the child taxed rather than me, plus I didnt want complicated administration, the Bare trust was appropriate. Then read the HM Revenue site on Bare trusts ---and understood the various tax implications.

I filled in the Bare Trust application booklet from BG . It came to the section of what year you wanted it to expire. Used my grandchilds 21st.

Having fully read the link above from xylophone - am I right in thinking now that the action of filling in the section asking for an end date , created a 'contingency' (which I understand as a condition) meaning that in no way could what I was applying for , actually be a 'Bare Trust' ? That in no way was mentioned during my conversation with BG about access dates.

I know the tax position of the beneficiary , I understand how tax applies to a bare trust ,and thats what I wanted and was sure I had signed up for . Now I dont even know what sort of trust I have created never mind understand the full tax position on it !

I cant see a call to BG being terribly helpful as they wont of course discuss tax at all, but we will see tomorrow . If Im still in the cooling off period, maybe its just a matter of deleting an end date .

ps Im aware I probably should have used an IFA, but for this piddling amount , it really didnt seem cost effective for a Bare Trust but Id most certainly have been looking to one if Id picked a different type.

xylophone

I am honestly not quite sure what has happened here.

Designated trust, or a Bare trust

Surely one has to opt for a designated account or an account held in bare trust?

As far as I know, one of the conditions of a bare trust is that the beneficiary has an absolute right to demand access and control at the age of 18 (16 in Scotland) whether or not they make such a demand?

Since BG appear to fully understand the access and control situation, I am not quite sure about why you are allowed to set a date of expiry at 21? Have you perhaps set a date when you will stop contributing to the plan?

And regarding tax , according to the link

"the beneficiary, being absolutely entitled to the income, will be treated as receiving the income and will thus be liable to make the appropriate return of the income and pay IT on it. It should be noted that the beneficiary will be so liable in respect of any income which accrues to the trust, whether or not it is actually paid to the beneficiary by the
trustees (see Baker v. Archer-Shee [1927 AC 844).

It would therefore seem essential that any beneficiary of a bare trust (or his parents) should know of the existence of a bare trust?

ANGLICANPAT

[QUOTE=xylophone;

Surely one has to opt for a designated account or an account held in bare trust?

Yes , sorry my mistake , I did mean Designated acccount.


As far as I know, one of the conditions of a bare trust is that the beneficiary has an absolute right to demand access and control at the age of 18 (16 in Scotland) whether or not they make such a demand?


Yes, thats the bit I was dubious about as BG did NOT give that impression at all on the phone (Reaper experienced the same chat)-- and the bit I posted earlier---
ie " The trustees you appoint will have administrative control until the child reaches 18 or older, when control should be passed to the child**.
-- also made me feel maybe it was ok and Id misunderstood.


Since BG appear to fully understand the access and control situation, I am not quite sure about why you are allowed to set a date of expiry at 21? Have you perhaps set a date when you will stop contributing to the plan?

No, it was a simple one off lump sum left to the child in a will so it came from a probate account with no furure DD's with it or anything. (Although I did plan to add to it in time)

And regarding tax , according to the link

"the beneficiary, being absolutely entitled to the income, will be treated as receiving the income and will thus be liable to make the appropriate return of the income and pay IT on it. It should be noted that the beneficiary will be so liable in respect of any income which accrues to the trust, whether or not it is actually paid to the beneficiary by the
trustees (see Baker v. Archer-Shee [1927 AC 844).

It would therefore seem essential that any beneficiary of a bare trust (or his parents) should know of the existence of a bare trust?[/QUOTE]


Yes, thats my understanding .Its what I wanted . I know I said I hoped my grandchild would be ignorant about the trust , but I would obviously be aware I couldnt allow her to be unknowingly in a financial position where the trust would have a bearing .


It is a puzzle as to what the final date option is all about on a BARE trust . Probably explainable by my inexperience , but I have to endeavor to find out and rectify it if poss.

xylophone

I would be very interested to know the explanation.

ANGLICANPAT

Another part of BG information which led me to a seemingly wrong conclusion - (from the T&C's)

Plans can be opened in one of two ways a) a Designated Acc
b) as a Bare Trust for the benefit of a child under the age of 18 (16 if child lives in Scotland) , or such other age as is set out in the application form .

The only explanation I can see at the moment, could be that these 'other age' boxes are for if you want to allow the child to take over the money whilst UNDER the age of legal adulthood.

If that turns out to be the case , I find that very misleading when at the same time BG staff are saying you can fill in a later than 18 date.

Reaper

ANGLICANPAT wrote: »

Having fully read the link above from xylophone - am I right in thinking now that the action of filling in the section asking for an end date , created a 'contingency' (which I understand as a condition) meaning that in no way could what I was applying for , actually be a 'Bare Trust' ?

If we accept the child will be able to demand access to the money at 18 despite the wishes of the trustees then no contingency has been created.

Effectively the trustees would carry on as default administrators until the child reached the specified age or the 18+ year old child elected to terminate the arrangement.

If this is the case then there is no problem. However I agree if putting a date in the box has made a legal difference to the contract then it could invalidate the trust. We will need to check with BG.

ANGLICANPAT

I have spoken to BG who have confirmed that everything is ok. The putting of 21, 25 or any other age, does not constitute a contingency legally as the child IS entitled to the money at 18 because the plan is filled in on a Bare Trust form.
The date you put in just gives BG the ok to keep running the trust till that date unless the Trustees write to ask for its termination. (As a matter of interest, the T's can also write at any time asking for the end date to be brought forward or extended )

The child does have to know about the trust at 18 , but BG are obliged to do nothing if the child rings them at 18 and demands for it to be closed and the money given to him/her. -- It is still up to the trustees , so in actual fact , BG say the late date angle works, because it boils down to the child having to go to court , and because in the vast majority of cases the child wont have the knowhow or finances to do that, the trust rumbles on achieving its aim of a delayed payout date. See post 9.
I have asked for them to put in writing for me that my putting a date later than 18 does not legally stop the plan from being a bare trust and they have agreed.

The more I think about it, the more I am dubious about this in practice .
I think it will work ok if the child just accepts that you are saying NO until he is 21 because that is the date you set, and is prepared to work with you to make sure the presence of the trust is taken into account with any tax or benefit issues he has to deal with ....

but imagine if you get a right bolshy headstrong 18yr old who thinks the money would be best spent immediately on buying a max carat diamond for the girl down the road he met last week , but he was bright enough to play you at your own game and threaten that if you didnt sign over, he would allow himself to get into all sorts of legal messes with HMRC by not declaring the trust and end up in debt or worse!!!

I guess one just has to wait and see what kind of person your 18 yr old beneficiary is, and then take it from there.

Thanks everyone for all the input.

xylophone

It is still up to the trustees ,

Are BG absolutely certain of the legal position?

See http://www.scottishwidows.co.uk/Extranet/Literature/Doc/FP0316

"With a bare trust the trustees are looking after
the trust property for the known beneficiaries.
The beneficiaries become absolutely entitled
to the trust property at age 18. Once the gift
is made the beneficiaries can’t be changed
and money can’t be withheld from them
beyond the age of 18."

HMRC are quite specific that the beneficiary of a bare trust "has an immediate and absolute right to both the capital and income in the trust."

See also
https://www.gov.uk/trusts-taxes/types-of-trust

" However, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales), or 16 or over (in Scotland)."

Either the beneficiary has the absolute right or he does not? Are BG prepared to put in writing that if the beneficiary asks for the money, it can legally be withheld unless the Trustee gives consent or a court order is made forcing them to pay the beneficiary?