Investing inheritance for children

Carla_Wellborn

My children inherited £25,000 each from my mum after her death. My husband and I are executors and the money is to be held in trust until they are 21, but can be used for university fees. One child is almost 18, the other 14.  What is the best way to invest this money without the risk of losing it on stock markets.  My son’s child trust fund has lost over half in the last year due to covid and I don’t want to risk this money, but would like to be able to grow it a little, especially as the 14yr old still has 7 years to go.  Thank you. 

Albermarle

If you want money to grow at a higher rate than you can get in a safe savings account , then you have to invest it in risk based assets. The only  risk free solution , is to take it to the bank or buy premium bonds .
My son’s child trust fund has lost over half in the last year due to covid
If this really is the case then there is something wrong . Most stock market based investments are up during 2020, despite Covid, and even those that are down would be not be anywhere near 50%.
Are you sure you are interpreting the ( up to date ) info correctly ?
 but can be used for university fees
That would probably be a waste of the money as it is nearly always better to get a Student Loan as often it never needs to be paid back , not in full anyway . Some help with day to day expenses is usually helpful though. 

NottinghamKnight

Carla_Wellborn said:

My children inherited £25,000 each from my mum after her death. My husband and I are executors and the money is to be held in trust until they are 21, but can be used for university fees. One child is almost 18, the other 14.  What is the best way to invest this money without the risk of losing it on stock markets.  My son’s child trust fund has lost over half in the last year due to covid and I don’t want to risk this money, but would like to be able to grow it a little, especially as the 14yr old still has 7 years to go.  Thank you. 

Might be worth giving more details on the ctf you have and when you have valuation dates as a 50%drop looks odd and highly unusual if true. 

Alexland

If the money was to be given at 18 then interest rates on Cash Junior ISAs are attractive (the CTF would need to be transfered in). However if the will required it to be held in trust until 21 that's not really an option and limits you to very poor interest rate savings accounts if you are unwilling to invest.

Albermarle said:

If this really is the case then there is something wrong . Most stock market based investments are up during 2020, despite Covid, 

Sadly at least one stupid CTF provider sold all the equities in their with-profits fund in March when markets crashed and locked in the losses - see 20th May update:
https://www.forestersfriendlysociety.co.uk/performance-update
Yet another reason to avoid friendly societies ruining people's life chances by selling terrible products that sound sensible.

Albermarle said:
That would probably be a waste of the money as it is nearly always better to get a Student Loan as often it never needs to be paid back , not in full anyway . Some help with day to day expenses is usually helpful though. 

I am not fully up to date with the latest student loans position but remember that my loan was means tested (so only got the core element) and only covered about half the cost incurred and I didn't qualify for a grant either. Who knows what the rules will be in future but its probably worth keeping some money accessible to cover the costs.

mark55man

Different parts of the loan will be for fees and for maintenance (that used to be a grant).  The maintenance element is unlikely to cover even the rent (whether in Uni accom or private).  Therefore you should expect to support the kids (or expect them to work) with the inheritance.  I strongly advise you not to expect them to work as it is clearly incompatible with 100% attention to studies.

The MSE has much advice about repaying the loans so read it first before doing anything in advance.  The basic advice seems to be unless you have the money up front and your child expects to earn in excess of the salary at which repayment is due then you shouldn't make early repayments.   

Alexland

mark55man said:
I strongly advise you not to expect them to work as it is clearly incompatible with 100% attention to studies.

While you might not want to bake it into the financial plan I would encourage them to take every opportunity to work and gain experience for their CV. I worked during term time (in a shop) and most holiday weekdays (all sorts of office work) and it didn't affect my grades and was critical to getting me into my first graduate job then getting promoted quickly. Employers like seeing evidence of a solid work ethic and it gives lots of real world examples to talk about in interviews.

mark55man

Alexland is correct, working during holiday's is fine.  My DD1 did that.  DD2 preferred to work part time but in term time.  It is that I meant to caution you about

Albermarle

Different parts of the loan will be for fees and for maintenance (that used to be a grant).  The maintenance element is unlikely to cover even the rent (whether in Uni accom or private)

The amount you can borrow for maintenance/living costs is linked to parental income, but even if you have a good income the student can still get > £1k per term + all the course fees as part of a Student Loan. In this case they will need help , typically by the parents paying the rent , which can be £3K to £6K pa. Unless they live at home of course.

xylophone

My children inherited £25,000 each from my mum after her death. My husband and I are executors and the money is to be held in trust 

Is this a true discretionary trust? It is necessary to know from the point of view of tax treatment.

https://www.gov.uk/trusts-taxes

That is to say, what are the exact terms of the will?

If the will leaves the cash to them when rather than if they attain the age of 21, then the bequests have indefeasibly vested in the beneficiaries and therefore the bequests would need to be in bare trust.

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

If this is the case, then the beneficiaries have the absolute right to call for access and control at the age of 18.

It might be as well to check with the solicitor who drafted the will?