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

What should I look for when choosing a trustee?

Posted on By Louise Polcaro
choosing a trustee

If you’re thinking about setting up a trust, either to take effect in your lifetime or after your death, you need to take care when choosing a trustee.

In setting up a trust, you are giving up ownership of the assets, and signing them over to the trustee. The trustee will then take responsibility for managing the money or assets that you have set aside in the trust for the benefit of someone else (the beneficiaries). The trustee must use the money or assets in the trust only for the beneficiary’s benefit and everything the trustee does must be done in the beneficiary’s best interests.

Clearly, with such an important responsibility, it is essential to choose the right person to act as trustee.

Who can be a trustee?

As a general rule, anyone over the age of 18 can be a trustee. But you will want to be very careful about who you give the power and responsibility of trusteeship to.

Many people appoint a trusted family member or friend for trusts that take effect after their death. For trusts that take effect in your lifetime, you can appoint yourself and your spouse/civil partner/partner as trustee(s) if you wish, so that you retain some control over the assets and the decision-making power, though you must exercise this for the benefit of the beneficiaries.

How many trustees should there be?

Two or three are preferred. Four is the maximum (unless it is a charity), and only one trust corporation is needed.

Must I appoint a professional trustee?

You do not need to appoint a professional trustee, but this can be helpful if the others are unfamiliar with the obligations of the role. Alternatively, you can appoint family or friends and they can take advice from a professional trustee as and when necessary.

What do I need to think about when choosing a professional trustee?

If you decide to use a professional trustee, make sure you do some research before you sign up with them.

  • How long has the company been trading?
  • Are they regulated by any body/bodies?
  • Have they signed up to any professional codes?
  • Do they have a good reputation?
  • Are their charges reasonable?
  • Do they have professional indemnity cover, or other protection in place?
  • Who are the directors? Check their credentials and background

You should take your time and shop around to ensure you are completely comfortable with the company before you make a decision.

Final thoughts

Ultimately the clue is in the name: ‘trust’. You must make sure you trust the person or people you appoint as trustee(s). This is an important decision and must not be taken lightly.

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How do I make decisions for my disabled child?

Posted on By Louise Polcaro
decisions for disabled child

Until a disabled child reaches the age of 18, parents (in most cases) will have parental responsibility for their child and, therefore, can make most decisions for them. However, once a child reaches 18 the legal position on decision making changes. Parents lose parental responsibility and no longer have any legal responsibilities or automatic rights to make decisions about their child.

In England and Wales, the starting point for a disabled individual and/or their parent to consider, with regards to decision making, is to assess each decision separately and establish whether your child is able to make this decision for themselves. This is a key principle of the Mental Capacity Act 2005 and it must be assumed that everyone has the capacity to make a decision for themselves unless it can be shown that they lack the mental capacity to do so.

If it is clear that your child isn’t able to make a particular decision, then the decision must be taken on their behalf and the Mental Capacity Act sets out how this must be done. The process will depend on the type of decision to be made.

Health and welfare decisions

Probably the most important type of decisions for your disabled child are those dealing with their health and welfare, for example medical treatment; where to live; what care is given; etc.

The person making the decision may vary depending on the type of decision required. It could be a carer, a health professional, a social worker or a parent. This person must consider a number of factors before the decision is made and the Mental Capacity Act states that any decision must be made in the child’s ‘best interests’.

It’s important to have a good understanding of the Mental Capacity Act and how the decision-making process should work when a decision needs to be made. Any person making a decision for your child should consider whether it is appropriate to consult others, including you as parents, for your views on what is in your child’s best interests.

If there is a dispute in the decision-making process, then attempts should be made to resolve these. It might be necessary to obtain a second opinion on a particular matter, or hold a ‘best interests’ meeting or conference with the relevant parties.

How does the Court of Protection fit in?

The Court of Protection has the power to make decisions on behalf of a person who lacks the mental capacity to make their own decisions or they can appoint a deputy who is given specific powers to make decisions on behalf of that person.

For most decisions that need making, following the Mental Capacity Act will enable decisions to be taken in the best interests of your child.  It is generally considered a last resort to apply to the Court.

The type of application made will vary depending on the circumstances at the time. The Court could be asked to make a decision about a particular matter, such as what treatment they should or shouldn’t receive. The Court can also be asked to appoint a deputy who will have certain powers to make decisions on your child’s behalf for a specific period of time.

In some situations, an emergency application can be made to the Court if a decision is required urgently and there is a risk of harm or loss to an individual.

Financial decisions

It is also important to think about what financial matters your disabled child may need help with. What assets do they have in their name? What income do they receive?

If your child is receiving benefits, then you should check with the Department for Work and Pensions if you are the appointee and, therefore, are the person responsible for managing these.

Any organisations where your child has assets may not allow you to manage those assets once your child is 18. For example, banks will require your child to take control of their account and they usually only accept instructions directly from the account holder.

If your child does not have the mental capacity to manage these assets, then you can apply to the Court of Protection to become their deputy for financial matters.

Any application for a deputyship will be considered by the Court and, if approved, they will issue a Deputy Order appointing the deputy and setting out what the deputy can and can’t do. The Deputy Order will then give you the necessary legal authority to manage your child’s financial affairs.

Who can help?

If you have any queries or concerns about how to make decisions for your disabled child, you should speak to a qualified professional, who will be able to advise on the best course for you and your family.

Katherine Miller TEP is a Director and Solicitor at Renaissance Legal

What is a living will?

Posted on By Louise Polcaro
Living will

The term ‘living will’ is often used to refer to what’s known as an ‘advance directive’ in Scotland, or an ‘advance decision’ in England, Wales and Northern Ireland. It is a written record of medical treatment that you may or may not wish to receive in the future. It only comes in to effect if you lose mental capacity or otherwise lose the ability to communicate your wishes.

A living will sets out your wishes for future medical treatment should you suffer from any one or more of a list of serious and irreversible medical conditions, including, for example, severe cancer or advanced dementia. Living wills typically state that you are not to receive life sustaining treatment, such as artificial feeding. While obvious pain and suffering is to be relieved, no attempt is to be made to prolong your life.

Benefits of having a living will

Many people have strong feelings about the medical treatment they may or may not wish to receive, if they were to suffer from a terminal illness. If you do, a living will would allow you to clearly communicate these wishes to your family and doctors at a time when you are no longer able to do so personally.

A living will can also help to alleviate your family’s distress at having to make difficult decisions about your medical care. In effect, it takes the decision outwith your family’s hands.

How is a living will given effect?

Unlike in England and Wales and Northern Ireland, where a living will is binding on doctors, in Scotland it is only one of a number of considerations that a medical team will take into account.  However, provided that it was granted while you fully understood the implications of signing it, a living will is highly persuasive and should be given effect.

Your living will would only be used if you lost the ability to communicate your wishes. This may be due to mental incapacity or a physical condition that prevents you from communicating.

Who should be notified?

You should make people aware that you have put a living will in place.

  • Your GP should be advised.  A copy of the living will can be placed on your medical records for ease of future reference.
  • You should tell your immediate relatives. Your next of kin may be consulted about your medical treatment if you are unable to communicate what your wishes are. It is important that your family are made aware of these wishes.
  • If you have a welfare power of attorney, your welfare attorney/s must be advised as they will be consulted about your medical treatment if you were to lose capacity.

Preparing a living will

Living wills are an increasingly popular estate-planning tool. It is extremely important that the document is an accurate and clear reflection of your wishes for future medical treatment. If considering putting one in pace as part of your estate plan, you should talk to a qualified professional. The charity Compassion in Dying can also provide further information and support, as well as free forms (online or via post), which, if completed correctly, are legally binding.

Jaclyn Russell TEP is a Partner in the private client team at Stronachs LLP in Aberdeen, Scotland