Investing kids inheritance

jimihat

Hi,

my kids have each been left 25% of my mother’s estate (will be around £50k ish each), for which I am handling probate.  Her will states that they should relieve this on their 25th birthdays and I’m not sure of the best options for investment and am looking to see if we can get some added value for them before they are 25.

I thought that some asset that would be of benefit to them and possibly increase in value would be good and if more benefit to them than a bond or something.  For example, a static caravan on a nice park would be great for holidays but would obviously depreciate a lot.  A rental property would be a great idea but would also come with its share of hassle and would be out of the area as property costs a lot where we are.

I even thought about them buying part of our house, essentially clearing most of our mortgage meaning we can have more holidays. I’ll be 65 when my youngest is 25 so we could possibly downsize then or before then and pay them back with interest, or even pay them back now instead of a mortgage company. Would potentially free up more money to spend on experiences with them whilst they are young.

Finally, if nobody has any ideas I haven’t considered, what would be peoples suggestions on more traditional investments to suit the situation. They will have about £50k each.

thank you in advance, sorry for the long post!

xylophone

Her will states that they should relieve this on their 25th birthdays 

What are the exact terms of the will?

You need to understand whether the inheritance has been left in bare trust or in any other kind of trust as this will dictate how it is treated in terms of taxation - if you are not sure, you should check with the solicitor who drafted the will.

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

If the money has  "indefeasibly vested" in the children, then it needs to be held individually for each child in bare trust.

https://www.gov.uk/trusts-taxes/trusts-and-income-tax

This means that each child is the beneficial owner of his legacy and is also beneficially entitled to any interest or income earned on that legacy.

For example, let's suppose that a fixed interest  account is available paying 2% interest for one year.

John Smith holds the account as bare trustee for his minor child. The £1000 interest earned belongs to the child and is taxable on the child.  Clearly if this is the child's only income there is no tax to pay as the child has his own personal allowance, starter rate for savings allowance and savings allowance if required.

You should also be aware that if the trust is bare, notwithstanding the age direction in the will, the beneficiary is entitled to call for access and control at the age of 18, (16 in Scotland).

As to what you may do with the money,  whether in bare trust or any other kind of trust, it must be kept clearly separate from any money/asset that belongs to you.

https://www.duttongregory.co.uk/site/personal/tax-wills-and-probate/trusteesdutiesandpowers/#:~:text=A Trustee owes a duty,actively involved in any decisions.

Linton

How old are your children?  Assuming it is say 10 years or more before they receive their inheritance then I suggest a very cautious investment in funds of shares and bonds would be appropriate.  You as the trustee of the money should be seen to have acted prudently with the money.  If you have no knowledge of investing it could be prudent for £100K to get one-off advice from an Independent Financial Advisor (IFA).

One key advantage of using a proper registered IFA rather than friends or unknown people on the Internet is that if the chosen investments were unsuitable for the purpose of protecting their inheritance your children could expect to get their money refunded.  The disadvantage is that there would be a cost of perhaps £3K.

If the children are going to receive the money in the next 5-10 years then keeping it in cash could be reasonable.

I believe it would be a serious mistake to mix up the children's inheritance with your finances.  Paying off your mortgage sounds very dubious to me.  It could all go horribly wrong and jeopardise family relationships.

jimihat

Thank you, it merely says:-

I give the whole net of the net my residuary estate to my executors upon trust to sell call in and convert same into money with power in their absolute discretion to postpone such sale calling in and conversion and to hold my Residuary Estate upon the trusts herein after declared.  

My residuary estate shall be divided into four equal shares and my executors shall hold the said shares upon the following trusts:-

it then names me and my brother (one share absolutely)

then for each of the the kids:   One share for XXXXX absolutely on her attaining the age of 25 years.

xylophone

One share for XXXXX absolutely on her attaining the age of 25 years.

You  should check with the solicitor but as this is when she attains and not if she attains, (see HMRC link)  then  it seems to me that the money indefeasibly vests in your daughter and therefore must be held in bare trust for her.

This is the same for the other children.

What ages are the children?

jimihat

xylophone said:

One share for XXXXX absolutely on her attaining the age of 25 years.

You  should check with the solicitor but as this is when she attains and not if she attains, (see HMRC link)  then  it seems to me that the money indefeasibly vests in your daughter and therefore must be held in bare trust for her.

This is the same for the other children.

What ages are the children?

One is 2, one is 8

IvanOpinion

Something a bit left field that may not be viable.  Do they really need to receive the money at 25?
You could consider starting a pension over the next couple of years.  They may not thank you at 25 but they should be very happy at 55.

jimihat

IvanOpinion said:

Something a bit left field that may not be viable.  Do they really need to receive the money at 25?
You could consider starting a pension over the next couple of years.  They may not thank you at 25 but they should be very happy at 55.

Thanks for the idea but I think a deposit on a property would serve them better.

masonic

Their money should be invested appropriately. Talk of things that would benefit you personally like paying off your mortgage suggest you need some impartial advice.

xylophone

You could consider starting a pension over the next couple of years. 

The children are likely to need to fund study/a home long before they need a pension.
And it seems to me that locking the inheritance in a product that cannot be utilised until the age of at least 55 is outwith the powers of the Trustee.

In view of the timescale before the beneficiaries may call for access and control, and because interest rates are currently low, you may wish to consider using stock market based investments for the bulk of the money.

https://www.youinvest.co.uk/investing-for-children/dealing-accounts-for-children

https://monevator.com/low-cost-index-trackers/

You could consider depositing 5k per child in a product such as https://www.bathbuildingsociety.co.uk/savings/personal-savings/Junior Saver

Now it would be a valid argument to say that from the point of view of tax efficiency, the JISA would be the better vehicle.

However, the fly in the ointment is that although the child cannot access the JISA before the age of 18, he or she may opt to control it from the age of 16 so that it could be argued that the Bare Trustee would not be properly exercising his responsibilities if he chose the JISA option.

A compromise might be to use the JISA for the cash deposit above and a child dealing account for the rest.