Inheritance, investment and Discretionary Gift Trust

ForestHome

Hi everyone. I'm 51 and just inherited about 700,000 from my mum. 

I've never had spare money to invest before so I'm a complete newbie. 

We own our house outright and are debt free but no savings.

Part of my inheritance is about 160,000 in a Discretionary Gift Trust from the PRU - mum set it up and my life is insured on it. I know I'm allowed to take out 5% per year tax free but what I didn't realise, until reading mum's 2024 annual report from her financial advisor is that the fees are 1.96% per year (!!). I don't think there is any way of changing this or getting out of the trust without incurring massive costs and taxes. So, I'm really quite wary of mum's financial advisor who she always thought was the bees knees. 

Before alarm bells started ringing about him, I'd always got on well and thought he had mum's best interests at heart. I have looked at the fees on the various mutual funds she had invested in on his recommendation and some had low-ish fees but others were over 1%. She tried to invest more ethically so maybe that's why he didn't advise her to invest in low cost ETFs? Her investments (now cashed in and sitting with the probate solicitor) were with Legal & General Future World ESG multi index 4 fund, Liontrust SF Cautious Managed, Royal London Sustainable Diversified Trust, Royal London ANL Steady Growth and the Pru trust with the huge fees is Prudential PruFund Growth Fund S5.

What do I want from the money? I want to put most of it away in investments for 5-10 years - when my kids are in their mid 20s in about 10 years time I'd like to help them with a deposit on a property. I want to have enough to retire on at 70 and not see my quality of life drop. I'd like to have a couple of nice holidays a year. 

I'm really scared of the meeting I have booked in with mum's financial advisor as I'm going to have to tell him I'm not investing all my inheritance with him. I'm not a fan of difficult conversations or giving people bad news.
 

Keep_pedalling

Is this person an FA or an IFA? I think when coming into such a large amount of money it is worth taking professional advice, but in your shoes I would be choosing my own IFA. You still need a meeting with her IFA to get a full picture of her investments but I'm would be instructing him to liquidate the funds to give you a pot of money to make your own choices as your needs are likely to be very different from your mother’s

ForestHome

Thank you for your reply - the funds have already been liquidated and are currently with the probate solicitor while we wait for the last of the few individual shares to be sold. 

The only thing he set up that is still extant is the PRU trust. 

dunstonh

Part of my inheritance is about 160,000 in a Discretionary Gift Trust from the PRU - mum set it up and my life is insured on it. I know I'm allowed to take out 5% per year tax free but what I didn't realise, until reading mum's 2024 annual report from her financial advisor is that the fees are 1.96% per year (!!).

The Prufund is not a low cost investment.  It has some capital security and operates a smoothing mechanism.  These come at a cost.

. I don't think there is any way of changing this or getting out of the trust without incurring massive costs and taxes. So, I'm really quite wary of mum's financial advisor who she always thought was the bees knees. 

Whilst I am no fan of the Prufund (their previous WP funds from pre-2005 are pretty good and low cost, but not the later ones), they do serve a niche investor who knows very little about investing and doesn't want to know and wants some capital security.

 She tried to invest more ethically so maybe that's why he didn't advise her to invest in low cost ETFs?

Why would he recommend your mum invest in ETFs?     no FSCS protection, require greater knowledge and understanding than OEICs/UTs.  Plus, the equivalent UT/OEIC is similar in cost.   ETFs are aimed at more experienced investors.    Prufund is at the opposite end of that as its aimed at the very inexperienced investor.    Most consumers are not suited for ETFs. 

 Her investments (now cashed in and sitting with the probate solicitor) were with Legal & General Future World ESG multi index 4 fund, Liontrust SF Cautious Managed, Royal London Sustainable Diversified Trust, Royal London ANL Steady Growth and the Pru trust with the huge fees is Prudential PruFund Growth Fund S5.

Not seeing any issues there.   Reponsible/ESG style funds do cost more typically.  

I'm really scared of the meeting I have booked in with mum's financial advisor as I'm going to have to tell him I'm not investing all my inheritance with him. I'm not a fan of difficult conversations or giving people bad news.

You are free to use who you like.  However, some of your views appear to be based on misconception and misunderstanding.    Your mum's investment understanding and knowledge would be different to yours. Her requirements would be different. So, the solutions would be different.       

ForestHome

Thanks for your reply - Maybe I got the wrong acronym but nearly all my friends who I've spoken to about what I should do have advised Vanguard 80% - some of them are experienced investors with backgrounds in the city and others are not. Vanguard ETF are not covered by the FSCS but if they went bust you would still get the value of your shares back I thought? 

dunstonh

Thanks for your reply - Maybe I got the wrong acronym but nearly all my friends who I've spoken to about what I should do have advised Vanguard 80% - some of them are experienced investors with backgrounds in the city and others are not.

VLS80 is not a bad option by any means.   However, there are better options at lower cost unless you like Vanguard's home bias management decision, which many do not.   The home bias management decision has resulted in lower returns in this cycle, but you never know; the markets may decide that the UK is the best place in the world for businesses and returns in the future and VLS would then be better placed than the alternatives. 

 It is also above the risk profile of the average UK consumer.  If that is ok with you, then that is fine.

Vanguard ETF are not covered by the FSCS but if they went bust you would still get the value of your shares back I thought? 

VLS 80 is not an ETF.  It's an OEIC.    With investments, the fund house going bust is not really an issue regarding FSCS.  It is fraud that is the main area where FSCS protection applies.