Investing a beneficiaries money until age 25

boxedin

I would appreciate some advice.
I am executor to my parents will. A grandchild now 18 year old is entitled to around £7.5k to be held in trust until the age 25. As interest rates are so low what are the best options bearing in mind the 7 year investment period

I thought a Cash and Shares ISA as the beneficiary has just started at university they aren't necessarily going to make much of the tax break aspect for 3 years

What to put in it is also a worry given the relatively low sum
Vanguard type product
Index Tracker
Corporate bond fund


Are there other less risky products that would offer a better return ?

Cash ISA's only seem to offer about 2.5% with the money tied up

Any suggestions will be greatly appreciated

Thanks

xylophone

You need to establish what kind of trust this is as you need to look at how it will be taxed.

http://www.hmrc.gov.uk/manuals/tsemmanual/tsem1563.htm

http://www.lawdonut.co.uk/law/personal-law/trusts-for-children-and-other-family-members-faqs

boxedin

Having looked at the HMRC site we think a bare trust
is the best option
Thanks

Linton

I think you should avoid anything that under realistic conditions could unexpectedly leave the beneficiary with less than £7.5K in 7 years time. So that rules out major equity investment. What about leaving say 6K in long term cash and the rest in a safer investment. There are Investment Trusts that focus on wealth preservation or a few absolute return funds with a reasonable record.

A different approach could be to have the discussion with the Grandchild. It would be educational for them and may make it easier if they accept a low risk of some capital loss.

xylophone

It is not a question of what you think is the best option but of what kind of trust the will has actually created.

Is there an immediate vested interest? (See HMRC link).

Ask the solicitor who drew up the will. Check with HMRC Trusts and Estates.

boxedin

Xylephone
Thanks for the information I have had a look

The will wording was basically a sum of money is to be held in trust by the executors until the beneficiary reaches the age of 25

The beneficiary was at the time 17 and is now 18 and was a residual beneficiary

I will check with HMRC about tax implications

The beneficiary is taking an active interest in how the money is invested so I am working up the options to present along with advantages and disadvantages and they are happy to operate in line with the terms of the will

Thanks

boxedin

Thanks for the reply Linton

I am of the same opinion must be low risk/no risk given the small amount involved and also low admin costs

I was thinking of maybe drip feeding into one of the new Help to buy ISA's due out in December