Bare Trust for school fees - ideas?

Wobblydeb

Hello

I am looking at setting up a Bare Trust to save our sons future school fees. Can any of you knowledgeable folk check my thinking?

There will be £850 / month plus a further lump sum of £2k per year going in, and in a few years time between £4-5k going out 3 times per year - i.e. £12-£15k per annum withdrawal. The maximum balance before we start that withdrawal will hit about £35k.

I have been looking at Baillie Gifford Children's Savings Plan, and also doing the same thing via Hargreaves Lansdown. I'd go for HL in preference, as my SIPP is there and I like their platform. BUT..... it seems to be the more expensive route as there is a £1.50 per Trust regular investment fee per month.

I was thinking of the following per month:
- £300 Scottish Mortgage Investment Trust
- £300 Edinburgh Worldwide IT Plc
- £150 BG Shin Nippon

Baillie Gifford's only cost is £22 per withdrawal, so £66 per annum once drawing down.

HL would be £54 per annum investment charges and I am guessing £11.95 dealing charge per sale, so another £36 - total £90 per annum.

What do you think of the trust mixture, and platforms? Any alternative suggestions? Thank you

Alexland

We are making modest monthly contributions into my son's BG CSP and are happy with the service however for your level of contribution would you not be better using your ISA wrapper to avoid the risk of exceeding the annual CGT or dividend allowance? Is there any particular reason you want this to be a Bare Trust?

Your investments will be very volatile - is the withdrawal date sufficiently far ahead to avoid the risk of selling while markets are low? It sounds like you are proposing to continue contributing while cycling money back out again which sounds very risky. Normally you would want to start derisking investments into fixed interest at least 5 years before the withdrawal date.

Alex.

Wobblydeb

Alexland wrote: »

...for your level of contribution would you not be better using your ISA wrapper to avoid the risk of exceeding the annual CGT or dividend allowance? Is there any particular reason you want this to be a Bare Trust?

I don't think there is much risk of exceeding the annual CGT allowance I need to realise c£15k each year, so I would be more than happy if that came from just £3k initial investment

Equally, there is only a yield on the Scottish Mortgage IT, and it is only 0.58% so again low likelihood of busting the £100 limit, and more than happy if it has grown sufficiently to do so.

I was considering a Bare Trust so that the money and it's purpose were clearly ringfenced, and both his father and I were named on the account. I was hoping to minimise paperwork too I agree that my own S&S ISA would probably be simplest, but it would cost more than going direct to BG and wouldn't keep the money ringfenced.

Alexland wrote: »

Your investments will be very volatile - is the withdrawal date sufficiently far ahead to avoid the risk of selling while markets are low? It sounds like you are proposing to continue contributing while cycling money back out again which sounds very risky. Normally you would want to start derisking investments into fixed interest at least 5 years before the withdrawal date.

Hmmmmmm it is a good point. How do I ensure best return given the nature of the investment? Should I perhaps be looking more at income generating trusts?

Alternatively I could wait 2 years and move our mortgage to an offset mortgage. There'll be £25k by then against £225k on the mortgage.

I've always hesitated to do this in the past for a couple of reasons 1) mortgage rates are so low that I've been able to earn more in regular savers and investments than by paying the mortgage down. 2) Offset mortgages cost more!

Food for thought......

xylophone

If you put this money into a bare trust, you are making an absolute gift to your child who will have the absolute right to access and control at the age of 18.

This will be a parental trust for an unmarried minor child and therefore any income over £100 per parent per annum will be taxed on you and your spouse.

https://www.boltburdon.co.uk/yourlife/wealth-planning/trusts/parental-trusts-minors/

You could set up a "designated" account - the money remains yours and is taxed on you.

http://www.charterbridgefinancialplanning.co.uk/factsheets/investing-for-children-what-you-need-to-know/

Alexland

Wobblydeb wrote: »

Hmmmmmm it is a good point. How do I ensure best return given the nature of the investment? Should I perhaps be looking more at income generating trusts?

Alternatively I could wait 2 years and move our mortgage to an offset mortgage. There'll be £25k by then against £225k on the mortgage.

I doubt the income you would get on your investment account would be enough to fund the whole liability however a slight bias to income generation might help.

Having an alternative way of funding the fees from a cash reserve (such as an offset mortgage) such that you do not need to sell down investements while they are low might be a good way of handling the situation - but then you wouldn't want the investments in the child's name as you might later want to redeem them to pay back your mortgage after markets have (hopefully) recovered.

Alex

kidmugsy

I suspect that for many people by the time the child has been at an unsatisfactory state school long enough for the parents to have decided on a move, it's too late to use equity investing to cover the fees.

I suppose that people who put the child's name down for Eton at birth may already have lots of equity investments.