Investing 100k for children

Piggy-bank_2

My children are about to receive approx 100k each thru inheritance rules (so theres no will stating what must be done with it etc) plus 5k per year for the next 10 years. They currently have a (full) junior cash ISA at around 3% plus (small amount) in the nationwide limited access account at around 2%

My first thought was to buy a nice small property (and rent out), it's a popular area and prices have been steadily rising by around 6-8% a year. This would guarantee them a place of their own as young adults plus additional income in the interim, rather than having to make potentially risky investments to grow the money at the same rate, but a quick browse suggests thats not a popular investment choice on here?! So, whilst I try and find an FA, would appreciate thoughts on what others would do in order to retain the "value"?
Thanks!

slowpoke_rodriguez

How old are your children?

xylophone

The money needs to be held in bare trust for each child individually - it belongs to each child absolutely and each child has the right to access and control at the age of 18.

https://www.taxation.co.uk/articles/2000/09/14/628/bare-bairns

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

You might wish to consider saving both in cash and in stocks and shares for each child - it is possible to set up a stocks and share account in trust for each child. Examples:-

Junior Investment Account http://www.hl.co.uk/faqs/contact-us/can-i-invest-on-behalf-of-a-child

https://www.charles-stanley.co.uk/sites/www.charles-stanley.co.uk/files/32.01%20Guide%20to_Investing%20for%20your%20children_140515.pdf

You might also consider using an investment trust savings plan in bare trust - Examples

https://thescottish.co.uk/give-your-child-a-flying-start-investing-for-university


https://www.bailliegifford.com/individual-investors/literature-library/individualintermediary-non-fund/investment-trust/childrens-savings-plan-application-pack

Your Independent Financial Adviser will make suggestions in respect of funds etc but you may wish to read up on your own account.

http://monevator.com/how-to-invest-for-children/

You might also wish to consider starting a pension for each child with part of the cash.

http://www.yourmoney.com/saving-banking/childrens-pensions-why-and-how/

https://www.cavendishonline.co.uk/pensions/stakeholder-pensions/

Piggy-bank_2

They are 6&8.

Thanks for the links, I've found plenty pages talking about money left in trust for children thru wills but struggled to find anything clear about rules when it's not via a will.

FatherAbraham

Piggy-bank wrote: »

My first thought was to buy a nice small property (and rent out), it's a popular area and prices have been steadily rising by around 6-8% a year. This would guarantee them a place of their own as young adults plus additional income in the interim, rather than having to make potentially risky investments to grow the money at the same rate, but a quick browse suggests thats not a popular investment choice on here?! So, whilst I try and find an FA, would appreciate thoughts on what others would do in order to retain the "value"?

Direct real-estate investing is inappropriate in this case for several reasons.

In particular, the children, who are the absolute owners of the assets to be invested, are too young to enter into a contract to provide accommodation, and are too young to be able to delegate that authority to an adult. Entering into such a contract opens a landlord up to potential liability.

In any case, managing the upkeep of a house means that it is definitely not a "hands-off" investment choice, which would become highly relevant if you were to die, and no other competent adult wished to take over the onerous running of the rental "business" on behalf of the children.

While I applaud your idea of trying to match the investment to future need for a residence, another issue is that you cannot know that this is what your offspring will want to do with their inheritance at that point - if they decide they want start-capital for their own business, or to pay for higher education, then there may have been a serious mismatch between investment performance and needs.

In any case, investing into a single property is a highly undiversified approach, with significant physical risk.

The best way to invest with an interest in the real-estate market is perhaps to put money into a fund which tracks UK property. However, this should probably not be the portfolio composition, and a mixed-asset blend shoud be considered.

Warmest regards,
FA

justme111

Sorry I am not sure about the rules myself. Just wanted to say - how do you envisage one property is going to work for two children one of which is older? I see a potential for disagreements and trouble.

Audaxer

Piggy-bank wrote: »

So, whilst I try and find an FA,

If you decide on an adviser it's best to make sure that you go for an Independent Financial Adviser.

Malthusian

Piggy-bank wrote: »

Thanks for the links, I've found plenty pages talking about money left in trust for children thru wills but struggled to find anything clear about rules when it's not via a will.

The rules are essentially the same as if the money was left to them via a Will rather than via intestacy.

Investing all their money in a single property is a non-starter. You have an obligation to invest their money as a prudent person of business would. Investing all their money in a single undiversified residential property asset doesn't meet that requirement. Apart from the numerous unnecessary risks, one of them may want to access their investment two years before the other - their investments need to be kept separate.

It would not guarantee them a place of their own. How do you know they are both going to want to live together, in that particular house, when they are young adults? If they sell it, are they likely to want to buy the kind of place that could be bought for £100k in today's money when they may have other priorities?

Residential properties are subject to exactly the same risks as stockmarket investments, plus some others. Like stockmarket investments there is no guarantee of income and like stockmarket invesmtents the value will fluctuate constantly (the fact that your property isn't professionally revalued every day, as stockmarket investments are, does not change the fact that the value is constantly fluctuating). The "others" are the risk of putting all your eggs in one basket (just because house price indices generally go up, it does not mean that all houses everywhere go up), the risk of bad tenants and the hassle of maintenance and repairs.

The money needs to be held in a diversified stockmarket portfolio for capital growth until they are 18 - an IFA will be able to advise on exactly how to invest it.

Piggy-bank_2

Thanks, as I said, I'd already realised that wasn't a popular choice here, but actually sounds like not a legal possibility anyway. My omission of "I" in FA was after reading a few threads about many not actually being as independent as they initially seem. The responsibility of maintaining something financially worthwhile for them after all their other losses weighs heavy & I guess my question should have been more about how others would invest that sort of money to give me some ideas to consider whilst trying to find a good FA/IFA.

DiggerUK

Piggy-bank
You don't sound the type of person who goes rushing in without thinking first.
You mention your concerns about the qualities of financial advisors. I am from the faction here that regards them as sexed up sales reps. The spin starts with the arguments that IFA's have access to 'the whole market' as opposed to a limited market......think it through, and you will find its markets with exactly the same products for sale. Just in different shapes, styles, colours and fashions.
The difference between someone offering hundreds of the same thing, and someone offering thousands of the same thing is zero.

Don't go down that road. You sound responsible and sensible. For now put the money somewhere safe and do your best to match inflation. Then do your homework, you've started well here.

Property is not something I would advise, lots of admin and ongoing expenses if you diy, even more expense if you get it managed. I'm also MSE's resident gold expert 🤓 don't be afraid to ask..._

Malthusian

Piggy-bank wrote: »

Thanks, as I said, I'd already realised that wasn't a popular choice here, but actually sounds like not a legal possibility anyway. My omission of "I" in FA was after reading a few threads about many not actually being as independent as they initially seem.

Ensure you ask, or at least check their website. Most Independent Financial Advisers will actively promote their Independent status. If a firm advertises itself as an Independent Financial Adviser they have to be just that.

People get caught out by the likes of St James Place because they either don't ask the question, or they fall for terms like "whole of market" and "best of breed" which are marketing terms and can be used by anyone, whereas the use of the term "independent" is defined by regulation.