Suggestions on what to do with inheritance.
Discussion
In short, Daughter has been left 100k (or thereabouts) inheritance, rule being (will of my Dad) it can't be touched until she reaches 25. She's 16 at time of writing.
I'm appointed as administrator / trustee and to support my late Dad's wishes, I need to find somewhere to put it.
My aim is to have a fund / savings scheme or product for her which will allow us to add some monies to as time goes on and has a half decent chance of giving a respectable return over 9 years.
Would it be better to seek out an IFA?, or are there any "turnkey" products on the market which might be suitable.
Thanks in advance and a Virtual single malt to you all.
I'm appointed as administrator / trustee and to support my late Dad's wishes, I need to find somewhere to put it.
My aim is to have a fund / savings scheme or product for her which will allow us to add some monies to as time goes on and has a half decent chance of giving a respectable return over 9 years.
Would it be better to seek out an IFA?, or are there any "turnkey" products on the market which might be suitable.
Thanks in advance and a Virtual single malt to you all.
When she hits 18, open a LISA and pay £4K /year in. By 25 she'll have £28K of her own money + interest, plus £7K free from the govt (providing she uses the money as a deposit on a property). If she isn't ready to buy at 25, just keep adding £4K a year for a bonus £1K a year. If she buys at 30, that'll be £48K plus interest, plus £12K govt free money.
No other investment you can make for her will guarantee 25% growth.
No other investment you can make for her will guarantee 25% growth.
I'd consider splitting it into 4 separate pots of £25k each, to diversify away some potential risk whilst also aiming for decent capital growth.
Something like:
£25k in a US or Global equity fund
£25k in an Emerging Markets equity fund
£25k in a UK equity fund
£25k in a Gold ETF.
Or something similar that either you or her would enjoy choosing - perhaps Developed Europe instead of Emerging Markets if you went for the Global fund rather than a purely US one, for instance. And/or some sort of Real Estate or Commercial Property fund.
Involve her in these choices so she feels a sense of ownership and stewardship over the 9 year period.
Something like:
£25k in a US or Global equity fund
£25k in an Emerging Markets equity fund
£25k in a UK equity fund
£25k in a Gold ETF.
Or something similar that either you or her would enjoy choosing - perhaps Developed Europe instead of Emerging Markets if you went for the Global fund rather than a purely US one, for instance. And/or some sort of Real Estate or Commercial Property fund.
Involve her in these choices so she feels a sense of ownership and stewardship over the 9 year period.
TwigtheWonderkid said:
When she hits 18, open a LISA and pay £4K /year in. By 25 she'll have £28K of her own money + interest, plus £7K free from the govt (providing she uses the money as a deposit on a property). If she isn't ready to buy at 25, just keep adding £4K a year for a bonus £1K a year. If she buys at 30, that'll be £48K plus interest, plus £12K govt free money.
No other investment you can make for her will guarantee 25% growth.
It also means unless she wants to spend it on a house below the not hat high threshold it is essentially useless to her until she is 60 or is prepared to lose money by withdrawing it early, so no, not a LISA.No other investment you can make for her will guarantee 25% growth.
How about sitting down with the daughter, discuss things she might want at 25 and the various ways to get a reasonable return on the money and over what is at 9 years a pretty decently long investment horizon?
TwigtheWonderkid said:
When she hits 18, open a LISA and pay £4K /year in. By 25 she'll have £28K of her own money + interest, plus £7K free from the govt (providing she uses the money as a deposit on a property). If she isn't ready to buy at 25, just keep adding £4K a year for a bonus £1K a year. If she buys at 30, that'll be £48K plus interest, plus £12K govt free money.
No other investment you can make for her will guarantee 25% growth.
That's a blinding deal, and I'll make some headway to doing that. Effectively that's 7 years of compounded interest on 4k pa, and 7k gratis, provided the rules remain in place.No other investment you can make for her will guarantee 25% growth.
Brilliant. Many thanks.
Stunters said:
I'd consider splitting it into 4 separate pots of £25k each, to diversify away some potential risk whilst also aiming for decent capital growth.
Something like:
£25k in a US or Global equity fund
£25k in an Emerging Markets equity fund
£25k in a UK equity fund
£25k in a Gold ETF.
Or something similar that either you or her would enjoy choosing - perhaps Developed Europe instead of Emerging Markets if you went for the Global fund rather than a purely US one, for instance. And/or some sort of Real Estate or Commercial Property fund.
Involve her in these choices so she feels a sense of ownership and stewardship over the 9 year period.
That looks to be an option but I'm not very savvy on the different funds available. I'm looking to shelter as much as possible from Tax for her as well, so one question would be can I open a LISA for her at 18 and, provided rules remain in situe , shelter another 16k PA into an S&S ISA?.Something like:
£25k in a US or Global equity fund
£25k in an Emerging Markets equity fund
£25k in a UK equity fund
£25k in a Gold ETF.
Or something similar that either you or her would enjoy choosing - perhaps Developed Europe instead of Emerging Markets if you went for the Global fund rather than a purely US one, for instance. And/or some sort of Real Estate or Commercial Property fund.
Involve her in these choices so she feels a sense of ownership and stewardship over the 9 year period.
compounded interest and added capital with returns free of tax over a 9 year period with a "safe" return is really what I'm aiming for. I'm not averse to risk with my own money, but my Dad worked hard and this is his money for her, so I really feel a sense of duty with regards to safeguarding it best I can.
texaxile said:
TwigtheWonderkid said:
When she hits 18, open a LISA and pay £4K /year in. By 25 she'll have £28K of her own money + interest, plus £7K free from the govt (providing she uses the money as a deposit on a property). If she isn't ready to buy at 25, just keep adding £4K a year for a bonus £1K a year. If she buys at 30, that'll be £48K plus interest, plus £12K govt free money.
No other investment you can make for her will guarantee 25% growth.
That's a blinding deal, and I'll make some headway to doing that. Effectively that's 7 years of compounded interest on 4k pa, and 7k gratis, provided the rules remain in place.No other investment you can make for her will guarantee 25% growth.
Brilliant. Many thanks.
However, I think you'd need to ascertain whether a trustee is able to open a LISA on behalf of somebody else. It might be possible, but I have my doubts.
texaxile said:
My aim is to have a fund / savings scheme or product for her which will allow us to add some monies to as time goes on and has a half decent chance of giving a respectable return over 9 years.
Re the bit in bold, her inheritance will be held in a trust. In the interests of transparency and keeping things simple, trying to add your own funds later on is not a good idea (and it probably won't be possible because you're a trustee, not the settlor). So I'd suggest keeping things very separate.C69 said:
Re the bit in bold, her inheritance will be held in a trust. In the interests of transparency and keeping things simple, trying to add your own funds later on is not a good idea (and it probably won't be possible because you're a trustee, not the settlor). So I'd suggest keeping things very separate.
Fair point and one I'd not considered. OK for the benefit of simplicity, I'll keep things restricted to trust. Again, not sure if I can open a LISA on her behalf, maybe some legal advice needed, which if it is not the case will be a massive shame because as @Twig said, could potentially lead to a decent handout of free money.
I just need to maximise the eventual amount for her, even if it tracks inflation (yes, not an exact science I know), with minimal risk.
texaxile said:
Would it be better to seek out an IFA?
Yes, because you ought to consider the "total picture".What sort of trust is it? Paying income tax at 45%? Subject to an IHT charge every 10 years?
From where I'm sitting an adult can be helped to deal sensibly with their own money from the age of 18.
What sort of trust is it? I'll be astounded if everything is completely "out of reach" to age 25. The trustee(s) need to have a serious think about starting to turn on the tap sooner than that..
Most particularly, from the age of 18,
£10,000 a year (max' £20k but perhaps a smaller figure to get started) into her own name and straight into a LISA or ISA, and
Another £3,000 a year into her own name and straight into a SIPP (where £2,880 instantly becomes £3,600)
all cumulating tax free.
If she decides to go off the rails you can simply turn off the tap.
Here's a link to an article which talks about some of the different types of trust and their complexities. Unless you are yourself a trained professional I think you're very likely to need paid advice and help to run the trust. You'll need to keep proper accounts and file annual tax returns. You'll almost certainly need to get your head around the difference between "capital" and "income" and which expenses get paid out of what. It's debateable whether you'll need a solicitor, an accountant, an IFA or some combination of those three.
Unfortunately you're likely to find that running a trust can involve quite a lot of professional fees if the job is done properly. Unless there's ££millions in there many families eventually decide to end the trust as soon as possible just to get away from all the taxes, fees, hassle and overall financial inefficiency.
https://www.taxadvisermagazine.com/article/practic...
Unfortunately you're likely to find that running a trust can involve quite a lot of professional fees if the job is done properly. Unless there's ££millions in there many families eventually decide to end the trust as soon as possible just to get away from all the taxes, fees, hassle and overall financial inefficiency.
https://www.taxadvisermagazine.com/article/practic...
As she is under 18 and therefore a minor, the law forbids her receiving her inheritance direct, so you cannot simply pay the £100,000 to her. You are likely to need to set up a trust for the payment to be made for her and available to her as per the trust's provisions. Trust assets will need to be invested and managed, one of the appointed trustees' responsibilities.
I only found out about this recently. I am an executor and the Will provides small bequests to two minors aged 6 & 8. In this case I arranged for the parents have set up junior ISAs and I've paid the bequest in to those ISAs.
See here for info: https://m.thegazette.co.uk/all-notices/content/103...
R.
I only found out about this recently. I am an executor and the Will provides small bequests to two minors aged 6 & 8. In this case I arranged for the parents have set up junior ISAs and I've paid the bequest in to those ISAs.
See here for info: https://m.thegazette.co.uk/all-notices/content/103...
R.
xeny said:
TwigtheWonderkid said:
When she hits 18, open a LISA and pay £4K /year in. By 25 she'll have £28K of her own money + interest, plus £7K free from the govt (providing she uses the money as a deposit on a property). If she isn't ready to buy at 25, just keep adding £4K a year for a bonus £1K a year. If she buys at 30, that'll be £48K plus interest, plus £12K govt free money.
No other investment you can make for her will guarantee 25% growth.
It also means unless she wants to spend it on a house below the not hat high threshold it is essentially useless to her until she is 60 or is prepared to lose money by withdrawing it early, so no, not a LISA.No other investment you can make for her will guarantee 25% growth.
TwigtheWonderkid said:
Most people (especially people that have inherited £100K when they were 16) want to buy their own place. The current limit is £450K. Not many 1st time buyers spend more than that. Both my kids did LISAs from aged 18, and bought well under £450K, and both bought in London. One got £7K, the other £8K, free money.
I'm not convinced that the limit will see significant indexing, and 9 years leaves a lot of scope for property prices to move. I'd at the very least discuss the trade offs with the eventual recipient.For what it's worth, "You can have both a Lifetime ISA (LISA) and a standard ISA (like a Cash ISA or Stocks & Shares ISA) at the same time. However, you can only contribute a maximum of £20,000 across all ISAs in a single tax year. Within that limit, you can contribute up to £4,000 to your LISA and the remaining amount to other ISAs."
I'm repeating myself but I'll simply emphasise the extraordinary power of tax-free compounding in ISAs and SIPPS.
If income is received in the trust it's almost certainly all taxed at a flat 45%. So £100 of income only gives the trustees £55 to invest and then any further income from those re-investments is itself taxed at 45%.
If income is paid out to a beneficiary they get the net figure of £55 PLUS a tax credit of the £45 tax already paid.
If the beneficiary is a non-taxpayer they can reclaim ALL of the £45 and then have £100 to invest in tax free ISA/SIPP.
(Even if the beneficiary is a taxpayer they may only be taxed at 20% so still have £80 to invest in tax free ISA/SIPP.)
There's loads of scope for tax suppression if you can get your head around this stuff.
Let's say the trust in this example generates an income of £4,000 a year from its investments. Sit on the cash until she's 18 and then start pushing it out to her. 9 years at £4k would end up as something over £50k sitting in a tax free environment and continuing to grow tax free. You can't get much better than that.
I'm repeating myself but I'll simply emphasise the extraordinary power of tax-free compounding in ISAs and SIPPS.
If income is received in the trust it's almost certainly all taxed at a flat 45%. So £100 of income only gives the trustees £55 to invest and then any further income from those re-investments is itself taxed at 45%.
If income is paid out to a beneficiary they get the net figure of £55 PLUS a tax credit of the £45 tax already paid.
If the beneficiary is a non-taxpayer they can reclaim ALL of the £45 and then have £100 to invest in tax free ISA/SIPP.
(Even if the beneficiary is a taxpayer they may only be taxed at 20% so still have £80 to invest in tax free ISA/SIPP.)
There's loads of scope for tax suppression if you can get your head around this stuff.
Let's say the trust in this example generates an income of £4,000 a year from its investments. Sit on the cash until she's 18 and then start pushing it out to her. 9 years at £4k would end up as something over £50k sitting in a tax free environment and continuing to grow tax free. You can't get much better than that.
James-gbg1e said:
It's 100K and it's for your daughter, why on earth would you not get proper IFA advice.
What you spend on the advice you'll be repaid if they're worth their salt.
I'd also suggest sitting down with the solicitor who constructed the will to ensure that you know exactly what type of trust it is, how it's actually meant to work, and what its tax treatment is. You should also ask them about registering the trust with HMRC.What you spend on the advice you'll be repaid if they're worth their salt.
Panamax said:
If income is received in the trust it's almost certainly all taxed at a flat 45%. So £100 of income only gives the trustees £55 to invest and then any further income from those re-investments is itself taxed at 45%.
This is why you need to understand the trust and its tax treatment. The 45% rate mentioned relates to discretionary trusts or accumulation trusts, while with bare trusts any income or gains are taxed on the beneficiary.Panamax said:
Let's say the trust in this example generates an income of £4,000 a year from its investments. Sit on the cash until she's 18 and then start pushing it out to her.
I don't think that the OP will be able to do that. It's a contingent gift, so she has to reach 25 before receiving a penny.Maybe. Maybe not.
Everything comes back to getting proper, paid advice. Which, regrettably, is unlikely to be cheap.
Probate solicitors love writing these theoretically wonderful trusts into £50 Wills. They know the reward comes later when the family is left scrabbling about for legal/investment/accounting/tax advice.
Everything comes back to getting proper, paid advice. Which, regrettably, is unlikely to be cheap.
Probate solicitors love writing these theoretically wonderful trusts into £50 Wills. They know the reward comes later when the family is left scrabbling about for legal/investment/accounting/tax advice.
Thanks for the help and advice gents. I really appreciate the input from everyone. 
As this is much more complex than I thought it was going to be originally, I will seek out an IFA and also consult with the Solicitors and move forward from there.
As another poster mentioned, a good IFA is going to be worth their salt and although it will come with an expense, it's going to be a case of doing it correctly and swallowing the cost.
It's also served as a lesson to me, in so far that we won't add any "conditions" to anything in our wills, should we ever change them.
I'll keep everyone informed as time goes on by way of updating this topic, but I daresay it won't be a quick process.
As this is much more complex than I thought it was going to be originally, I will seek out an IFA and also consult with the Solicitors and move forward from there.
As another poster mentioned, a good IFA is going to be worth their salt and although it will come with an expense, it's going to be a case of doing it correctly and swallowing the cost.
It's also served as a lesson to me, in so far that we won't add any "conditions" to anything in our wills, should we ever change them.
I'll keep everyone informed as time goes on by way of updating this topic, but I daresay it won't be a quick process.
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