Investing an inheritance for Step-son

vinnie_chestnut

I'm new to this malarky so apologies if I make a pigs ear of it.

My 13 year old step son has inherited just over £20k from his Grandfather. Can anyone suggest a place to start looking for the best place to invest this?

Ideally we'd like to tie most of this up until he's 21, but also like to keep some available to him if he goes to University (hopefully). Legally are we able to do this?

dunstonh

As trustees you have to do what is best and be seen to do what is best for beneficiary. This usually means seeking independent financial advice first. Many wont do this and it will never be a problem. However, if the beneficiary disagrees with the way you have handled the trust (when he is older), he can take legal action against you. It's unlikely but it does happen. If you have sought professional independent advice, then there cannot be any arguement in his favour.

On the inheritance, were there any instructions as to when the money should be made available to your step son? such as not to be made available until x age?

charlieboycat

Your stepson will be a non-taxpayer. So, whatever else you do, don't go for National Savings investments of the type that pay out "tax free" - he'd get a lousy return.

mbamick

Given the nature of the gift, the age of the beneficiary, and the need to guarantee that the money is still available in 5-9 years time, I suspect that you'll end up plumping for a no-risk investment, such as a high-interest savings account.

However, a possible alternative is Premium Bonds. They are risk-free, and you can get at the cash [usually within about 7 days]. Premium Bonds don't pay interest; instead they have a monthly prize draw of all eligible numbers. It now pays out TWO monthly prizes of £1 Million and a raft of £100 and £50 prizes - all of which are tax-free. You can reinvest winnings up to a maximum of £30,000.

I've held them for about 5 years now, and have averaged about 3%-4% return. As a high rate taxpayer, I'm happy with the tax-free status; but there are better interest bearing accounts for your son. Albeit, the local building society won't offer him the opportunity to win 1 of 2 £1Million prizes every month.

dunstonh

Given the nature of the gift, the age of the beneficiary, and the need to guarantee that the money is still available in 5-9 years time, I suspect that you'll end up plumping for a no-risk investment, such as a high-interest savings account.

Really? I wouldn't think that. Risk is not an on/off situation as such. Its a sliding scale. 5-9 years is certainly within the timescale to have a portfolio made up of some investments which have a varying degree of investment risk.

However, a possible alternative is Premium Bonds. They are risk-free, and you can get at the cash [usually within about 7 days]. Premium Bonds don't pay interest; instead they have a monthly prize draw of all eligible numbers. It now pays out TWO monthly prizes of £1 Million and a raft of £100 and £50 prizes - all of which are tax-free. You can reinvest winnings up to a maximum of £30,000.

Almost asking for a problem later on down the road. I don't know how you could justify premium bonds being in the best interest of the beneficiary.

vinnie_chestnut

We're not really happy with the idea of premium bonds. I understand that there is no risk to his capital, but were not happy to leave growth on this to a lottery. If he wants to win a million, he can buy a lotto ticket when he's 16.

I think the best thing for us to do is speak to an IFA and sort out a portfolio of low to low/medium risk investments, but keep a few K in a savings account (to put in a cash ISA when he's 16) to support him through Uni if needed.

Does this sound reasonable?