Daughters inheritance

Poshpaws_2

My daughter has been left £75k by her grandma. She is coming up to 18 and it is to be invested in trust for her until she is 21.
Both myself and my husband are trustees.
Just looking for some advice really as to where to invest this currently.
We are not really experienced in financial matters and are just looking for some advice please.

Voyager2002

I think you need to have a conversation with her.

If her plan is to spend it all on her 21st birthday then you should really avoid investments and choose securities with zero risk of capital loss such as premium bonds, or the highest interest savings accounts that you can find. Sadly, this strategy will not keep up with inflation so the purchasing power of her inheritance when she receives it would be less than it commands today.

Alternatively, it could be invested in something based on shares in companies. Such investments almost always increase in value over the long term, but may lose value in the short term (and then recover). As a rule of thumb, if this kind of investment is held for at least five years it is highly likely to increase in value, but three years is generally too short a time-frame.

MovingForwards

You may want a read through this thread too:

https://forums.moneysavingexpert.com/discussion/comment/77944513#Comment_77944513

And cross reference with the wording of the will, as your daughter may be entitled to the money now (16 in Scotland).

xylophone

She is coming up to 18 and it is to be invested in trust for her until she is 21.

Has the money "indefeasibly vested" in your daughter? Ask the solicitor who drafted the will if you are not sure.

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

If so, the Trust is a Bare Trust.

https://www.gov.uk/trusts-taxes/types-of-trust

Assets in a bare trust are held in the name of a trustee. However, the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales), or 16 or over (in Scotland). This means the assets set aside by the settlor will always go directly to the intended beneficiary.

https://www.bequeathed.org/wills/will-trust/bare-trust#:~:text=A bare trust is a,what they want with them.

A bare trust is a type of trust where the beneficiary becomes absolutely entitled to the capital in the trust at the age of 18. At that age, the beneficiary can ask for the assets to be handed over to them and they can do what they want with them. Until they reach 18, the trustees have no active powers except the duty to hold the legal title to the trust assets and invest them appropriately.

If she has a CTF,  (and there is time) before she turns 18, it may be worth your considering making the maximum contribution to the CTF, transferring it to JISA and then making the maximum 20/21 contribution to the JISA - you would thereby take up to £18,000 out of a taxed environment.

 If this is a bare trust, it would be easier all round for your daughter (on reaching the age of 18) to invest or save the  bequest (or the balance of the bequest) in her own name?

She might like to start a LISA?

https://www.moneysavingexpert.com/savings/lifetime-isas/

She might wish to consider a stocks and shares ISA?

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

https://www.moneysavingexpert.com/savings/stocks-shares-isas/

As you will know, savings rates are not great but she might consider a one year fixed rate and then add to her LISA and stocks and shares ISA in the following year. 

https://www.thisismoney.co.uk/money/article-1621507/Best-savings-rates-Fixed-rate-accounts.html

If the Trust is not a bare trust but is a Discretionary Trust, see https://www.gov.uk/trusts-taxes/types-of-trust re tax treatment.

You will need an account in the name of the Trust, either savings or investment.

You may need a current account for the Trust  ( Metro Bank or Natwest have been mentioned in this regard)- it would be possible to open a Discretionary Trust account with one of the investment platforms.

A savings account in the name of a Discretionary Trust is likely to be more difficult to open.

There are some specialist providers.

https://www.caterallen.co.uk/accounts/specialist-banking/solutions-for-trusts/

Poshpaws_2

Thanks so much for all this information. It does state on the will that my daughters inheritance is due providing 'she survives me and attains the age of 21' Therefore not a bare trust? My daughter is adamant this money is only going to be used to buy her first house as her Grandma was quite insistent it should be for this purpose.

xylophone

It does state on the will that my daughters inheritance is due providing 'she survives me and attains the age of 21' 

 This situation is covered in HMRC  link above.

Example 3 - not a bare trust

Mr B left the residue of his estate to ‘such of my grandchildren as survive me and attain age 21 years’. If any grandchild dies before age 21, his/her prospective share goes to the other grandchildren who do attain that age.

Here there are two conditions to be met before the grandchildren become entitled to their shares in the estate:-

• they must survive Mr B; and
• they must attain age 21 years

Here the grandchildren did not take immediate vested interests at the death of the testator. This is not a bare trust.

 Below seems relevant to the matter.

https://www.accountingweb.co.uk/any-answers/will-trust-for-minor-with-contingency

,,,,,,,,HMRC will look on it as a Trust liable to the full trust rates.
The income is added to the capital, and tax pool rolls up each year, until someone becomes entitled to the underlying asset. Then it is distributed and tax credit given along with the capital distribution.

There is information about the taxation of an accumulation/discretionary trust in the  link

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

If this money is to be held on deposit in the name of the Trustees, you will need to find an institution that will allow you to open a Trustee account.

As I said above, there are specialist providers but you may find options among the mainstream providers.

Example http://www.coventrybuildingsociety.co.uk/pdfs/general_investment_terms_and_conditions.pdf

If you want to open an account as a trustee,
talk to us. 

Or you might try Skipton Building Society

Trustee Savings Account

Application Form

For trustees, where the beneficiary is an individual

Interest rates are poor at the moment and the interest will need to be declared to HMRC because it will be taxable (although paid gross).

If you intend to go the investment route ( t for the longer term, not just three years) and don't wish to make decisions without guidance, you  might seek advice from a local Independent Financial Adviser.

https://adviserbook.co.uk/

Poshpaws_2

Thank you for this information, really useful

MX5huggy

Is a trust Necessary?  form what you say your daughter has a plan that seems reasonable she’s an adult and between the 3 of you seems you will come up with a fair plan. It’s not the same as say she was 8. 

I would be looking to get £4000 in to a LISA this year and every year to get the £1000 from the government each year to be spent on that house. I don’t know if you can have this in a trust. Does 75k represent a large deposit on property she is likely to buy so say a £20k salary could get her in a property, so it’s realistic to do this in the next 7 years or. Would you think the property purchase would be further in the future? Investing for for 3 to 5 years is a different risk to 7 years plus. 

xylophone

Is a trust Necessary? 

If the terms of the will are followed, then yes.

There may be a way round it (the parents would need to consult a solicitor) if the will could be varied so as to leave the daughter a vested interest.