Investing money for children

KWarr

Hello. My mum left my two children (12 and 14 years old) around £15K in her will with the stipulation that it is invested until they are 21 years old. We obviously want to get the best return we can but at the same time do not want to risk losing the capital. Ideally putting it somewhere it can be locked down and just left until it matures when they reach 21. There are so many different options that we are somewhat confused! Any advice would be gratefully received. Many thanks

steampowered

I am afraid it is impossible to avoid the risk of losing capital.

If you keep the money in a bank account, inflation will reduce the value of the capital each year. 9 years of inflation running at 2.5% per year will reduce the value of the inheritance by 24.89%.

Decisions with regards to what to do with the money are a balancing act. You have to balance inflation risk, investment risk and getting a good return - since you cannot get a good return without accepting some investment risk. 

Perhaps consider a medium risk investment fund?

xylophone

My mum left my two children (12 and 14 years old) around £15K in her will with the stipulation that it is invested until they are 21 years old. 

See https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

 It is very important to establish  whether  the money has "indefeasibly vested" in your children (when they turn 21 rather than if they reach 21)?

If so, then you would hold it in Bare Trust.

The point about a bare trust is that the beneficiary has the absolute right to access and control at the age of 18 (16 in Scotland).

https://www.taxinsider.co.uk/the-bare-essentials-bare-trusts

The bequest is £15,000 for each child?

Does each child have a CTF?  If so, it could be possible to make the maximum contribution to the CTF in this CTF year, transfer the CTF to JISA then make the maximum JISA contribution for this tax year.

See https://forums.moneysavingexpert.com/discussion/6206176/best-savings-account-for-16-year-old#latest

You might (for example) make the maximum contribution to the CTF before transfer to a cash JISA and then open a stocks and shares JISA with the current tax year's contribution.

This way your children would have a "foot in both camps" as it were.

The Vanguard JISA might be a suitable choice for the stocks and shares element?

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-junior-isa

https://monevator.com/using-vanguard-lifestrategy-funds-life/

KWarr

Thank you for the replies. Yes it’s £15,000 each. They do have CTFs so maybe that’s the way forwards then use the JISA to get the reasonably low risk investment. I’ll look up the one you mentioned. I completely understand that just leaving the money in a bank account will effectively lose the girls money so want to make it grow a little for them (I know it’s hard in the current climate!). But equally I would feel really bad if we lost them money as my mum wanted them to have a nest egg to help start them off in life. Thanks again for your help. 

xylophone

if you do not wish to use investments, then you can make the contribution to the CTF, transfer to a cash JISA and contribute this tax year's contribution to the cash JISA.

Coventry BS currently offers 2.95% and accepts transfers in.

cloud_dog

A child can hold both a cash and S&S JISA so depending on risk adverseness you could deposit X in to a cash one and Y into a S&S one.

AnotherJoe

KWarr said:

Thank you for the replies. Yes it’s £15,000 each. They do have CTFs so maybe that’s the way forwards then use the JISA to get the reasonably low risk investment. I’ll look up the one you mentioned. I completely understand that just leaving the money in a bank account will effectively lose the girls money so want to make it grow a little for them (I know it’s hard in the current climate!). But equally I would feel really bad if we lost them money as my mum wanted them to have a nest egg to help start them off in life. Thanks again for your help. 

Well, you'll for sure be losing them money if you leave it in cash type accounts, your mums £15k (my commiserations) will likely be worth £12k or less in real terms in 10 years time even if its "face value" is say £16k. Whereas a generic global index investment fund would probably be in the region of £20k in real terms and maybe £25k face value. But sure there's a risk. Just as there's a risk crossing the road but you do eventually let your kids cross the road.