Child trust funds: do you need to act now?

Posted on By Joanna Pegum
backpacker

Thousands of child trust funds came into the control of 18-year-olds from September 2020 as the oldest accounts matured, giving children control and access to over potentially tens of thousands of pounds.

Every child born between 1 September 2002 and 2 January 2011 was eligible for a child trust fund, introduced by Labour to encourage regular and long-term savings in a tax-free account that the child could control at 16, but not withdraw funds until 18. Payments made into the account had an original upper limit of £1,200 per annum and have since risen to £9,000 in the 2021/22 tax year – meaning that by the time children turn 18, some funds could be worth at least £70,000.

While the scheme was replaced with junior ISAs in 2011, the holders of the earliest child trust funds turned 16 from the beginning of September 2018 and the first child trust funds matured in September 2020 giving the child full access to the account.  On maturity the child trust fund can either be cashed in or the proceeds passed to an Adult ISA.  However, if the child does not contact the provider then the money will be held in a protected account.

Some of the larger funds could make a huge difference to a young adult’s life by providing the means for a house deposit, money to start their own business or to be put towards higher education. However, many parents will worry that their child will fritter away the fund at their first taste of freedom.

Parents should talk to their children to discuss what they might want to do with their fund and how they might want to invest it. One option is for the child to put the trust fund into a tax-free junior ISA so that it turns into an adult ISA when he/she turns 18, but proper advice should always be sought on the best decision.

These early conversations will arm children with the best knowledge available to them, and could ward off unwise decisions when they turn 18 and gain unfettered control of the assets. While there is very little parents can do if their child still fritters away a child trust fund, they may decide that future assets they are planning to leave the child are best put in trust, rather than bequeathed outright.

In some instances the child may reach 18 but lack the mental capacity to provide instructions to the provider.  In these circumstances and in the absence of a registered Financial Lasting Power of Attorney, the parent will need to apply to the Court of Protection to be appointed as their child’s deputy, giving them the necessary authority to deal with account on their child’s behalf.

Sarah Phillips TEP is a Tax Partner at Irwin Mitchell Private Wealth, Newbury, Berks

The risks of not making a will

Posted on By admin
Woman thinking about making a will

It’s very easy to put off making a will, as no-one likes to face up to their own mortality.

But there may be serious implications for your family if you don’t make one. Your home and property may not be distributed according to your wishes, and you risk depriving family members of their inheritance and even their home.

Possible consequences of not making a will

Some of the consequences of not preparing a will include:

  • Your estate may be distributed under the intestacy rules, which favour close family
  • Step children and unmarried partners may be overlooked
  • Your partner may be left homeless
  • Your children may be left with no legal guardian
  • Your family may face additional distress at a difficult time
  • Your money may go to the government
  • Family disputes may arise
  • Legal action may be required, which can be very expensive
  • Your family may face a higher bill for inheritance tax
  • The law is regularly changing, and it may not favour your family

Your will is an important document, so it’s worth using an experienced professional to make sure it’s drawn up properly. It will cost a few hundred pounds or so, but you’ll get an estimate first, so there’s no need to worry about fees mounting up.

The greatest advantage of using a professional is the peace of mind it will bring you. A professional will construct your will the way you want, to suit your individual needs, and will ensure all your wishes are carried out following your death.

There will be no technical mistakes, so you can rest assured there will be no expensive and upsetting disputes for your family to deal with when you’re no longer around.

I don’t believe it! Common excuses for not making a will

Posted on By admin

I have been working as a solicitor for more than 30 years. With every day that passes I begin to feel (and possibly look) like Victor Meldrew from the classic TV programme, One Foot in the Grave. I find myself frequently saying ‘I don’t believe it!’.

Sadly, I deal with inheritance disputes, and even more sadly, I see families falling out about the estate of a family member who has died. What is all the more tragic is that many of these disputes would never arise if people made a formal will to set out their wishes.

From love to war

I recently represented the long-term partner of a very successful businessman. They had been together for over 20 years. He knew that he was dying of an incurable disease. He had advice from a solicitor that he should make a will, but he refused to sign one. When he died without a will, none of his estate went to his long-term partner, but instead went to the children of his former wife.

To say that disagreement erupted between family members was an understatement. Court proceedings had to be commenced for reasonable financial provision under the Inheritance Act 1975. The close family who one year were sharing Christmas dinner around a dining room table found themselves the next year arguing around a lawyer’s table.

All of this could have been avoided if he had made a carefully considered will – making provision for the partner he loved.

Protecting your business

Another successful businessman was in partnership with his brother. They both received professional advice that they should make wills and that they should be updated from time to time. Although they both made a will to ensure the continuation of their business, they failed to update their wills when their business was changed from a limited company to a partnership. This meant that when one of the brothers died unexpectedly, the provisions in the will about company shares became invalid.

Expect the unexpected

A wealthy man sadly had a history of failed relationships, with a variety of children by different partners. He found it ‘too difficult’ to work out the provision that he wanted to make for each of his children and former partners. He thought he would live for many years and spend most of their inheritance before he died and he said that they could ‘fight about what was left’.

Unexpected things happen. This man died, unexpectedly, shortly after he retired, leaving a large estate for his children to do exactly as he had predicted – namely fight about what was left.

Everybody dies, so make a will!

The story that I get from so many clients is that their loved one ‘never thought that they would die’. As I said at the outset of this article – I just don’t believe it!

When I give advice that people should make a will I do this not from self-interest, but because I genuinely hate to see families fall out at such a sad time.

If things do go wrong then a good lawyer can tell you about the pragmatic steps that can be taken to resolve a difficult situation without causing needless and undue family disharmony. Many advisors will not charge for initial telephone, or personal, advice – advice that can be priceless.

Talk to a TEP – find an expert near you

Stephen Lawson TEP is a Partner and Head of Litigation at FDR Law LLP, Frodsham, UK