Kids savings account v overpaying mortgage

WantToRetireEarly

@Terry I am not sure it's that clear cut. What if any gain was used to better the child's circumstances (better clothes, new shoes, books, sending the child on a school trip), or offset against expenses incurred to bring up the child which would otherwise not happen?

Say the OP has control over £10,000 in the child's savings account. The school is organising an optional trip to Europe which costs (say) £1,000 per child. The OP pays for the trip and then reimburses that payment from the child's savings account. Or the OP pays for the trip and a couple of weeks later moves £1,000 from the savings account to the mortgage.

I think the basic premise is that the parents know best and that they would act in the child's best interests. The bar for proving that that isn't the case, especially for the relatively small amounts we're talking about here, will necessarily be quite high. I imagine that the cases that get to court deal with very large estates, inheritances, big trust funds, etc.

Terry_Towelling

WantToRetireEarly wrote: »

@Terry I am not sure it's that clear cut. What if any gain was used to better the child's circumstances (better clothes, new shoes, books, sending the child on a school trip), or offset against expenses incurred to bring up the child which would otherwise not happen?

Say the OP has £10,000 in the child's savings account. The school is organising an optional trip to Europe which costs (say) £1,000 per child. The OP pays for the trip and then reimburses that payment from the child's savings account. Or the OP pays for the trip and a couple of weeks later moves £1,000 from the savings account to the mortgage.

Fair point, but my example centred around nothing but OP's implied intention to only use the fund to obtain a better interest rate prior to paying down the mortgage.

In your example, the issue of what is best for the child is transferred somewhat. Is the expenditure in the child's best interests and was it appropriate for the child to pay for it themselves? If so, the mortgage paying issue then becomes unconnected because the trustee is simply reimbursing their own expenditure. The fact that they then decide to pay down their mortgage by the same amount is coincidental and (on the basis that it has been deemed appropriate for the child to pay for the 'thing' themselves) the trustee is not actually gaining from either the cash or the enhanced interest rate being offered by the child's account.

So, yes, you are right in that it does create a further patch of grey in our desire to achieve a black and white image but it doesn't amount to the trustee gaining at the expense of the child by 'misusing' their account and the child will have received some material benefit as a result of the process. With OP's suggestion, there was no evidence that the child would have anything tangible to show for the removal of funds from their account - unless they did indeed receive a paid-up share in the property.

WantToRetireEarly

You have a point. But we might be reading too much into what the OP said at the very beginning of this thread, well before all the following posts. If you go by what he says, he also says later on that he doesn't intend to break the law.

Maybe (like one of the legal opinions Martin cites in his article about childrens savings) he thinks that "there's nothing in practice to stop it" from him using the money in what he feels to be in the child's best interests. Or if he's smart, maybe he'll just do what bowlhead said "may use their discretionary powers under The Trustee Act 1925 to use the funds under their management for maintenance and education or benefit of the child." to get the same end result.

Or maybe we're only talking about a couple of hundred pounds a month and he's decided to drop the plan!

Terry_Towelling wrote: »

Fair point, but my example centred around nothing but OP's implied intention to only use the fund to obtain a better interest rate prior to paying down the mortgage.

In your example, the issue of what is best for the child is transferred somewhat. Is the expenditure in the child's best interests and was it appropriate for the child to pay for it themselves? If so, the mortgage paying issue then becomes unconnected because the trustee is simply reimbursing their own expenditure. The fact that they then decide to pay down their mortgage by the same amount is coincidental and (on the basis that it has been deemed appropriate for the child to pay for the 'thing' themselves) the trustee is not actually gaining from either the cash or the enhanced interest rate being offered by the child's account.

So, yes, you are right in that it does create a further patch of grey in our desire to achieve a black and white image but it doesn't amount to the trustee gaining at the expense of the child by 'misusing' their account and the child will have received some material benefit as a result of the process. With OP's suggestion, there was no evidence that the child would have anything tangible to show for the removal of funds from their account - unless they did indeed receive a paid-up share in the property.

Terry_Towelling

muhandis wrote: »

The way I see it, it would be better to open an account in my 18 month old daughters name and use it to hold any cash that I would otherwise use to overpay my mortgage. I get a slightly better return and better yet still have access to that cash in case I need it.
K

Yes, @Wanttoretireearly, we may be reading more into it but it is always useful to debate stuff and get a broad range of viewpoints.

As far as OP is concerned, I infer that he only said he wouldn't break the law to shut us all up. His original post was quite unequivocal though. He may claim he hasn't implied anything but all of us reading it will have inferred the same. I've highlighted the pertinent text above.

However, when all is said and done, and nothwithstanding the law/account conditions, I can see that even if he were to make irregular use of the cash (which was his to start with) nobody would actually be harmed or lose out - except the bank by a few quid in interest. And, before you all jump on me, I'm not advocating anything improper here, just highlighting a point.

muhandis

Finally got an authoritative answer from an accountant.

- As a Trustee for my children all I need to do is ensure that any funds held in my childrens' names are used for their benefit and that can range from a share of the rent/mortgage, any and all expenses incurred for them (nappies, baby food, travel costs, etc etc). Any day to day expenses that can be reasonably apportioned are fine. As long as any money I withdraw from their accounts is covered by those costs, there is no problem at all.

- As long as I satisfy the above, it's up to me where to put the money, absolutely nothing illegal about putting it in children's accounts for the interest (as long as I pay the tax due on it) and withdrawing when necessary as long as it is offset by money spent on the children.

He did say that I am really overthinking this.

My needs fit perfectly well with the above. Lots of great saving rates for children's accounts - NW 3.5% (5k/child), Barclays reg saver (3.5%), Halifax reg saver (4.5%), Santander 3% (2k/child), etc. I stooze quite a bit and that works well. Won't have to change any of that.

Thanks for all the comments, it was good to get to the bottom of this.

Warm regards,

K