Child savings under trust?

Sprockett

Hi folks, I'm hoping you can help.

I have an initial £2,000 to put into savings for my 1yr old son, but I'm wary of putting it in a child ISA as he will get complete control of it when he turns 18 and could just waste it.

What would be my best option?

I was hoping there would be some way of saving it under a trust for him, where he can only access after he is 18 but only when the trustees allow regardless of his age. Any idea how I would go about this and will it cost me anything to set up?

thanks in advance
x

Reaper

There is no easy way as generally trusts can be ended when the child becomes an adult regardless of what they specify.

Baille Gifford may be your best bet. They allow you to choose any age you want to end it. If you opt to end later than 18 their plan appears to make it difficult for the child to access the money to the extent the child would have to go to court to get it. So not foolproof but probably your best bet.

They are an investment trust company and will set up your investment as a bare trust if you ask. You will need 2 tustees to manage it.

Alternatively keep the money, stick it in your own ISA and gift it whenever you want. If so just remember to specify it in your will in case you don't make it that far, and consider inheritance tax if that could apply.

Sprockett

Thanks Reaper.

If I was to save under my own ISA for him would that impact any benefits I may need to claim in the future (eg. job seekers allowance where you need to declare your savings)? Obviously I have no plans to be on any benefits but you never know whats down the line...

Also, some of the money has been given to him as a cheque written in his name. I assume this could only be cashed in an account set up for him?

I find all this very confusing

Reaper

I don't claim to be an expert on benefits but money in your own ISA would belong to you, in which case anything that took into account your savings would include it.

If that is a concern then a Bare Trust is indeed what you want. Any money put into that becomes the child's. Which is good but means you can't change your mind later and decide to spend it on yourself. The only exception is the bizarre "£100 rule". If the money comes from parents (not relatives) and the interest from it (not capital growth, just income) exceeds £100 in a year then it counts as being the parents money for tax purposes.

Cheques made out to the child by others might still be a problem though. Baillie Gifford tend to want all money to come from a trustee so you might have to get them to pay it to you first and pass it on. Do keep records (e.g. cheque details) in case you ever need to explain to the tax man which money came from parents and which from relatives. Highly unlikely in practice though.

A Junior ISAs would be simpler (the £100 rule does not apply to them) but you ruled that out. Then there's child pensions - but that might be going too far...!

xylophone

as a cheque written in his name.

Your son is the legal and beneficial owner of this money and it must be credited to an account in his name.

Why not simply put it into a cash JISA for him - you need not add any more to it. https://www.gov.uk/junior-individual-savings-accounts/overview

http://www.moneysavingexpert.com/savings/junior-isa

If you happen to have an ISA of your own with Halifax, he could get the 4% rate.

http://www.halifax.co.uk/isas/cash-isas/junior-cash-isa/

With regard to holding money/investments for your son in a bare trust and claiming benefits, you might have some difficulty if you could access the funds and spend the money as your own - you could be called upon to demonstrate that you were not doing this?

And the child does have the legal right to access and control of the funds in a bare trust at the age of 18 (16 in Scotland).

If you save in your child's name outside a tax privileged account like a JISA, be aware of the "£100 rule".

http://uk.virginmoney.com/virgin/savings/learn/childrens-accounts/ See things you might like to know.

bowlhead99

Many companies offering investment trusts will allow you the choice of a designated account - where it's still entirely your money but designated with the child's initials to help you track it - or 'bare trust' where it absolutely belongs to the child and you are simply holding it for the child as a trustee of their assets because children under 18 (16 in Scotland) can't legally enter into contracts to own a fund.

At age of 18, the trustee(s) of a bare trust have a legal responsibility to transfer the assets into the (former) child's own name if the child wants them to. If they don't, you're correct, the child could pursue through the courts.

In practice, they are unlikely to want to sue their parents and would probably quite happily accept the argument that "as well as paying hundreds of thousands of pounds of your living costs over the last 18 years, we've generously been putting away some of it away in investment funds for you to have when you turn 21. If you need money now for university tuition fees or driving lessons or something, we're happy to release some of it rather than being stubborn about it, but basically we plan to give this to you when you've had a bit more practice of being a grownup".

A 'bare trust' is the simplest possible type of trust and very cheap to set up (free with many investment companies). But it's important to realise that the assets in a bare trust is not the trustee's assets, they are the child's assets. If the child died tomorrow or age 18 or age 25, the assets belong to the estate of the child and not the estate of the trustee. If the trust generates interest income or gains that could be taxable, the trustee has the responsibility to supply that information to the beneficiary so they can record it on their tax return etc.

It is certainly possible to have a trust whereby the assets don't fully belong to the child now and can't be grabbed by them at 18. But if the trustees have discretion what to do with it, how to invest it, and when or who to distribute the assets at some point beyond 18, it is not a bare trust, it's a more complicated trust, and you would want to spend money on a solicitor to get a deed prepared and understand the tax and legal implications.

Certainly if you have the space in your own accounts to invest efficiently (e.g. in an ISA allowance, or perhaps you're not high rate taxpayers and don't forsee income tax or capital gains tax being a problem anyway), that would be a nice simple approach. Just make them a gift later whenever you like as Reaper suggests. Obviously as you suggest, if you keep the assets in your name rather than the child's name, and it's legally your money even if designated with the child's initials, they are absolutely your assets which means they can be taken into account by creditors pursuing you for debts, or by governments means-testing you for benefits etc.

xylophone

http://www.hmrc.gov.uk/trusts/types/minors.htm
Regarding parental trusts for children.