Child savings non ISA and non accessible - bare trust?
Discussion
Both my daughters and cash and s&s isa’s (to give a balance of risk) with each child holding around £50k (at ages 12 and 10). This is from a combination of regular payments from myself and my wife, gifts and inheritance. If should continue to rise around £2-3000 a year per child
They will have access to that at 18, the aim being that it could fund university, property or they could avoid wasting it and spend it more wisely on travelling or a Ferrari for their Dad as a gift, we will wait and see how it turns out
My parents are sorting out their finances following a couple of health wobbles. Again, I have suggested the Ferrari route but what they want to do it gift money to their grandchildren (noting they are expecting, hoping that at least one of them is alive for 7 more years).
But they don’t want to go down the ISA route as they want to limit access until the girls are 25. I.e post university,
So I think we need to set up a bare trust my question is:
- does the trust also need/could cover the existing JiSAs?
- can I use non isa savings for kids (decent rates at the moment and no tax)
- can I open the accounts before the trust is established or does the trust need to be active before the accounts are opened and the gift made?
- I assume when the children are aged 18 they can move money into adult isas including the money in the non isa account but this is subject to whatever annual isa limit is in place at the time?
Any other thoughts on my strategy welcomed. I survived on a NatWest savings account, coins and a full set of china piggies pre university so this is all new!
They will have access to that at 18, the aim being that it could fund university, property or they could avoid wasting it and spend it more wisely on travelling or a Ferrari for their Dad as a gift, we will wait and see how it turns out
My parents are sorting out their finances following a couple of health wobbles. Again, I have suggested the Ferrari route but what they want to do it gift money to their grandchildren (noting they are expecting, hoping that at least one of them is alive for 7 more years).
But they don’t want to go down the ISA route as they want to limit access until the girls are 25. I.e post university,
So I think we need to set up a bare trust my question is:
- does the trust also need/could cover the existing JiSAs?
- can I use non isa savings for kids (decent rates at the moment and no tax)
- can I open the accounts before the trust is established or does the trust need to be active before the accounts are opened and the gift made?
- I assume when the children are aged 18 they can move money into adult isas including the money in the non isa account but this is subject to whatever annual isa limit is in place at the time?
Any other thoughts on my strategy welcomed. I survived on a NatWest savings account, coins and a full set of china piggies pre university so this is all new!
- You cannot hold an JISA in a bare trust
- Yes, you can open a savings account on behalf of your children
- Well, what is the 'gift' and who is the beneficiary of the accounts? If you open an account (on behalf of your children?) and the grandparents gift the money to that account, then the money is for the benefit of the children, the grandparents no longer have that money. Why would the children put money they already have into a bare trust?- They can open their own ISA at 18, yes. And contribute whatever the limit is at the time in each tax year. But not the money in the bare trust as that will not be under their direction until l 25.I think the trustees would be able to withdraw from the trust and invest in an ISA for the benefit of the beneficiary at 18.
Note that investments in the bare trust will be subject to income tax and capital gains tax, subject to the annual allowances.
Edited by CharlesElliott on Monday 23 June 10:04
That’s helpful thanks
The purpose of the trust is to limit their access until they are 25
The grandparents wish to gift the money now so will have to call or on it but they don’t want the. To have it at 18 (as there is already provision for them at 18)
I will manage the trust and money until they are 25
Do I need to establish the trust before I open the savings account or do I do the account opening first and then set up the trust (with suitable professional input)
The purpose of the trust is to limit their access until they are 25
The grandparents wish to gift the money now so will have to call or on it but they don’t want the. To have it at 18 (as there is already provision for them at 18)
I will manage the trust and money until they are 25
Do I need to establish the trust before I open the savings account or do I do the account opening first and then set up the trust (with suitable professional input)
You establish the trust for the benefit of the children and then grandparents gift to the trust. Note that there are different rules if you (parents) gift to the trust so make sure the trail reflects a gift from a grandparent.
You don't 'open an account' and then put it under the banner of the trust, as such, you need to establish a trust and then contribute to that trust.
If you want to restrict the access until 25, a bare trust is not going to work as the child can direct the trustees once they reach 18, so they could instruct the trustees to move the money to them. So you would need to look at a discretionary trust which has different tax rules, particularly with respect to inheritance tax.
To be honest, unless the sums are very large, this is likely to be a complex and probably expensive way to hold off giving them money for 7 extra years.
You don't 'open an account' and then put it under the banner of the trust, as such, you need to establish a trust and then contribute to that trust.
If you want to restrict the access until 25, a bare trust is not going to work as the child can direct the trustees once they reach 18, so they could instruct the trustees to move the money to them. So you would need to look at a discretionary trust which has different tax rules, particularly with respect to inheritance tax.
To be honest, unless the sums are very large, this is likely to be a complex and probably expensive way to hold off giving them money for 7 extra years.
An option I considered for my kids was:
Bare trust until age 17.5
Then move money into an account that is locked up for the next few years (e.g. a 5-yr fixed rate savings bond) so they can’t actually spend it until age 23.
Saves the hassle and cost of a discretionary trust which, when I looked into it, was going to cost c.£1k to set up, plus needing annual tax returns and, depending on your own knowledge, potentially an expensive discretionary investment manager to invest it.
If the grandparents put it into trust, watch out for the fourteen year shadow on IHT.
Bare trust until age 17.5
Then move money into an account that is locked up for the next few years (e.g. a 5-yr fixed rate savings bond) so they can’t actually spend it until age 23.
Saves the hassle and cost of a discretionary trust which, when I looked into it, was going to cost c.£1k to set up, plus needing annual tax returns and, depending on your own knowledge, potentially an expensive discretionary investment manager to invest it.
If the grandparents put it into trust, watch out for the fourteen year shadow on IHT.
Again,, really useful contributions thanks
I wasn’t aware of the 14 yr IHT if a trust is involved
Maybe I should ask the question in a different way:
A grand parent wishes to gift their grandchildren (x2) £100k split equally as a gift
They are aware if they die within 7 years this could impact IHT
They don’t wish the parents to be involved in the transfer of money, ie they want it to go directly to the grandchildren
They don’t wish for them to have access to it until they are 25
?
Although from this thread and additional reading holding the money in under 18s accounts in their names with me as the cosignatory and then moving it into a 5 year non at 17.5 yrs seems like a much more straightforward and cost effective way of managing it
I wasn’t aware of the 14 yr IHT if a trust is involved
Maybe I should ask the question in a different way:
A grand parent wishes to gift their grandchildren (x2) £100k split equally as a gift
They are aware if they die within 7 years this could impact IHT
They don’t wish the parents to be involved in the transfer of money, ie they want it to go directly to the grandchildren
They don’t wish for them to have access to it until they are 25
?
Although from this thread and additional reading holding the money in under 18s accounts in their names with me as the cosignatory and then moving it into a 5 year non at 17.5 yrs seems like a much more straightforward and cost effective way of managing it
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