I'm the Executor of a will - need advice on investing for a minor...

Phamous

Afternoon all!

Myself and my uncle are managing the estate of my late great aunt.

She left a sum for my niece but stipulated that she not receive it until she's 25 (she's 12 now)

I have scoured the internet until my brain aches and it seems we are not legally bound to make a trust (although obviously we can if we want to...)

It's not a massive amount (meaning it could easily be eaten up by paying solicitors and managing a trust) so am keen to organise this myself, to make sure she gets the most money possible.

Any ideas? Is a high-interest account good enough or are there other avenues I could be exploring?

Thanks in advance.

princeofpounds

given this is a long-term timeframe, you probably want to have it invested in real assets (shares, property funds, inflation-linked bonds) rather than nominal assets like cash or bonds.

Your_Hero

To my understanding, if your great aunt has stipulated (I presume in the will?) that the money belongs to your niece and cannot have it until she is 25, this will create a discretionary trust for the proceeds.


Chances are it is better for you to invest it into equities/property/bonds etc. within the trust. Remember that if you are the trustee, you have a fiduciary duty to look after the proceeds and invest prudently. This does not mean taking no risk at all because there will be virtually zero growth for her in 13 years' time. Nor does it mean taking massive risks. Depending on the amounts, it may be worth seeking some advice.

Phamous

Thank you everyone - good to hear other's advice on this.

I am reluctant to invest in stocks and shares - for two reasons...

1. She is able to come to us and ask for an advance for education or maintenance and it's at our discretion if we allow her some funds early - so we need to be able to access at least some of the money.

2. There are MASSIVE family shenanigans around the will as two people were removed by the deceased about a year before she died (with good reason!) and so I absolutely cannot take any risk not worth taking. I do not want any further shenanigans if an investment fails.

I just had a thought - what about a junior ISA? Instant access cash and good rate of return which is tax-free for her.

Any thoughts?

bowlhead99

Phamous wrote: »

I just had a thought - what about a junior ISA? Instant access cash and good rate of return which is tax-free for her.

Any thoughts?

Well firstly, junior cash ISAs do not typically have good rates of return. Junior S&S ISAs have good rates of return over long enough timescales. The tax free status is something of a red herring because I imagine she is not using her £10k annual income allowance as it is, unless she has a very lucrative paper round. If she were to stay in education (e.g. 3 years + of uni) she may not find herself a taxpayer for the next 10 years.

Anyway, this doesn't work. An ISA is in her name, which means she has the power to control it from age 16 and withdraw it from age 18. This is expressly against the wishes of the deceased who said she couldn't have it until 25. Also, there's a limit to how much can be contributed in a single tax year, which you may not run up against given you said it was not a lot of money, but would be a factor.

You said you were co trustee / executor with your uncle. What are his thoughts on the matter? Or those of the parents of your niece? Obviously you don't have to listen to them and may not want to open a can of worms (family shenanigans) if they prefer one route and you as executor decide against it, but if you all get along well, this could be OK.

Also:

1. She is able to come to us and ask for an advance for education or maintenance and it's at our discretion if we allow her some funds early - so we need to be able to access at least some of the money.

You mentioned that the amount was not so massive that it couldn't easily get eaten up by solicitor fees. If you consider the broad remit of 'education and maintenance' - say she goes to university in 6 years from now and needs at least £10k a year in course fees and £5k a year in renting somewhere to live and buying food.

Presumably if she is not working full time throughout uni and does not have generous parental money to cover all this, it would not be unreasonable to have £40-£50k released from the trust "at your discretion" if you considered a university education would be valuable for her (of course, it might not be).

So is there realistically going to be anything left in the pot at 25? This makes a difference in terms of whether you are planning for a 13 year investment or a 6 year one.

2. There are MASSIVE family shenanigans around the will as two people were removed by the deceased about a year before she died (with good reason!) and so I absolutely cannot take any risk not worth taking. I do not want any further shenanigans if an investment fails.

I highlighted the relevant piece from your statement. 13 years is not a massive investment horizon but planning for a sizeable inheritance in 13 years is not a 'rainy day fund' which needs to be in cash in case it's needed the very next day, and thereby failing to keep up with inflation.

Typically, though not always, cash will be beaten by investment returns over a 13 year cycle.

So, if you leave it in cash, it will likely be worth less in real terms than it is today, because a bank can't do anything with it to generate returns, because it has to be able to guarantee to pay you back at least what you paid in plus a little interest. Only by investing it, can you improve upon the size of the pot in real terms. It is 'worth taking' some investment risk because if you do not take any risk the pot will just dwindle away with inflation.

A couple of thousand today sounds like a lot to a 12 year old but is relatively little to a 25 year old earning 30k a year, and if you haven't at least maintained its value in real terms over the timeframe of over a decade, you have not been carrying out your duties as effectively as everyone would have liked. If there are 'family shenanigans' then you are in a lose/lose situation because if the investment is not gloriously successful they will complain and if the few thousands is only worth half that in real terms by 2027 because you stuck to cash they will also complain.

I'm not suggesting you stick it all on black in a casino or put it all into a speculative biotechnology investment trust whose value can move up or down by 70% every year. But some medium to higher risk investments, such as global shares-based funds or investment trusts, could be used in conjunction with something less risky. If the total pot is sizeable, split it and use more than one fund, so that even if one tanks in value the others will hopefully not.

Of course, if you think you'll need all the cash in 5 years to buy her a car for the commute to her first job, or to pay for higher education, that will restrict the riskiness/volatility of the funds you could use and you might be back to square one, using cash based. But maybe there's a halfway house where you stick x% into a fixed term deposit for 2-3 years with the idea of reassessing at that point, meanwhile sticking y% into an investment for ten years longer than that.

bristol_pilot

In this situation it is essential to take professional legal and investment advice, that way you can demonstrate acting responsibly as executor. Otherwise you could end up being personally sued by your grown-up niece if she thinks in future that you could have invested better for her.

bowlhead99

bristol_pilot wrote: »

In this situation it is essential to take professional legal and investment advice, that way you can demonstrate acting responsibly as executor. Otherwise you could end up being personally sued by your grown-up niece if she thinks in future that you could have invested better for her.

I agree with that, especially if there are 'shenanigans' and someone might poison her mind against you so that she complains; you need to have covered your bases.

However, as you alluded in your first post, if you go and see an IFA and pay £1k for investment advice on a £4k inheritance, that won't be in anyone's interests.

If you are not 100% clear on your responsibilities, a solicitor should be able to guide you as to what those responsibilities are. Fees for legal advice on how to discharge your duties as executors (or even to appoint a solicitor to act as executor) should be able to come out of the estate. Even without telling you what funds to invest in, because they are not regulated to give investment advice, a solicitor could likely confirm on or off the record whether someone in your situation could 'get into trouble' by using a broad-based investment fund as a part of looking after the funds for a 13 year time horizon.

xylophone

The child has the absolute right to control a JISA at 16 and to take out the money at 18.

The beneficiary of a bare trust has the right to access and control of the assets at the age of 18 (16 in Scotland).

You state that the will stipulates that the child may not control the capital until the age of 25?

See http://www.hmrc.gov.uk/trusts/types/discretionary-accum.htm

Is this a discretionary/accumulation trust?

It would be as well to take professional advice? Be aware though that the solicitor is unlikely to give financial advice, though he may be able to recommend "a man who can" in the words of that TV ad.

http://www.step.org/

http://www.unbiased.co.uk/

Phamous

Great advice - thank you everyone.

It seems to me that I need to do a lot more thinking and investigating, so will leave it in the savings account it's in now while I seek further advice. I'd really like to do a great job for her funds so she has a nice nest egg to fall back on.

If it helps to tell you the amount - it's £15,000. It would be amazing if we could make that grow for her.

Does anybody know... if I incur any fees for managing her money (e.g if I see a solicitor or financial advisor) - is that paid for by her bequest? (I also have a bequest but it would be great if I didn't have to pay personally to manage her money for her)

Thanks everyone - I have read all your advice and it's been really helpful. This is a great forum!

Ainsley1

some great responses there for you!
As a trustee i can appreciate that you have a dilemma i.e conflicts. The requirement to act responsibly, which may mean taking professional advice and that of, at least, maintaining value both so as to act in the beneficiary's interest.

With the size of trust you will have it is very unlikely (unless you take outlandish risks!!) that capital gains tax will feature or even income tax. If you involve professionals you will most likely significantly eat into her pot unless as suggested above it can be funded out of the estate overall. I had to have advice initially and also continuing advice for some time regarding trust management and, even with small levels of professional fees, that ate into the overall yield.

I would try for the initial legal advice on behalf of the Estate, not necessarily with any associated legal action. The specific wording of the will is very important and you might just not appreciate the significance of it all and a few hundred pound worth of advice may be well worth it.

You can then make informed decisions.

I found that with the beneficiary agreement (not a minor however) over a similar period diversified UK S&S collective investments became an acceptable risk but I doubt in your case that a minor could agree in the same manner to make your choices easier. At present you would be unlikely to find many cash investments open to trustees that would keep pace with inflation and you run the risk of effectively losing value over the whole period. A split of investment types might seem the way forward but advice again is probably best. Contact several IFAs or stockbrokers etc. and find out which ones will offer reasonably priced service given that it is just £15K. You will be able to have preliminary discussions at no cost for any adviser worth his salt but they will need copies of the will to study.

Phamous

Thank you.

I am going to see a solicitor - I think you're right Ainsley1... a few hundred pounds now could save a lot of hassle in the future. 12 years is a long time and I don't want one inch of comeback over this...

Thank you!