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Investing for my children
Posted: 03 January 2013 11:34:56(UTC)

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I have two young children - age 4 and 5.

They have the child trust fund money as provided by the government. We are not adding any further funds to this as they can access this at age 18 - depending on what they are like at this age this may be a bad idea. I think I would prefer to be able to determine when the appropriate time is for them to receive money eg age 25 when buying their first house might make more sense.

We had set up a simple savings account for them at Nationwide, but I am shocked at how little interest there is on this account.

Any suggestions as to where I could get a better return over the long term?

I was thinking of high div shares with automatic div reinvestment as they would appear to offer a good long term return where the short term volatility is irrelevant.

I have my own Sipp, ISA etc with share and fund investments. Can I set up share dealing accounts for my children or am I better just using my and my wife's ISA's and setting certain investments within these aside as relating to my children?

Any advice appreciated?

Posted: 03 January 2013 17:41:24(UTC)

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The basic problem you are facing is that if you want to keep the money out of the hands of your children after they have reached the age of majority (18) you can only do so by setting up a formal Trust (Discretionary, Accumulation & Maintenance etc.). I did this for mine in 1988 but over time it has become more and more unattractive as successive Governments have attacked the use of Trusts so that they can be both expensive to administer and tax-ineffective (e.g. there is a double-taxation effect if you distribute income to children via a Trust). What you are doing at the moment is called a "bare trust" (that is, you are managing cash and assets on their behalf until they reach 18). You can do this via a simple bank account - as you have done - or via a Junior ISA etc. but you must put everything into separate accounts in their name rather than mixing it in with your own or your wife's. Your children can have their own tax allowances and can be treated quite separately but HMRC won't believe you if you say some of the money in your own or your wife's accounts belongs to your children!

If you envisage that substantial sums may be involved, then research setting up a proper Trust but otherwise my own view would be to do the bare trust/Junior ISA thing and try to educate your children to be sensible with money. They will probably listen to you; not many 18-year olds have the confidence to cash in all their chips and blow it and, in fact, with University fees etc as they are, they will need to get used to dealing with relatively large amounts of money at that age anyway. Anyway, my main point is that you can't control your children's money after they reach 18 without setting up a formal Trust specifying a different age.
2 users thanked jeffian for this post.
E73 on 03/01/2013(UTC), Stephen Garsed on 06/01/2013(UTC)
Alan Jay
Posted: 04 January 2013 06:37:47(UTC)

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Please bear in mind that if you merely place money in a savings account in a child's name then any income in excess off £100 per annum would be taxed as if it was the parents' income. It's much better to get grandparents and others to give the money to your children.
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philip hayman on 06/01/2013(UTC), Stephen Garsed on 06/01/2013(UTC)
philip hayman
Posted: 06 January 2013 10:29:45(UTC)

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I am expecting my first grandchild in February and would like to start a tax efficient savings fund for the child.

I would prefer to invest in high dividend shares or growth & income ITs. Any suggestions please.

Philip John
Alan Jay
Posted: 06 January 2013 11:19:02(UTC)

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Philip, read Investors Chronicle's excellent article at http://www.investorschro...H04lkFVcEL/article.html This gives a good introduction and a link to an article entitled "IC TOP 100 FUNDS". This list of funds includes details on 49 investment trusts and while the article is not completely up to date I think that it gives sufficient information to allow you to zone in on the type of investment that you want. You can then research up to date performance and price figures on many web sites. (My favourite is Digital Look.) Access to the IC article requires registration but this is free.

If you wish to research individual shares my preference is a Digital Look site where you can specify specific parameters which will then produce a list from which you can make your selection. I limit myself to the following criteria: FTSE 100 companies only, dividend greater than 3.5% (you pick what is acceptable to you), a minimum of 2 times dividend cover, and PEG less than 1.0. (The experts suggest that a company with a PEG greater than 1 is too dear.) The site link is http://www.digitallook.c...creening_tools/screener and once again you need to register (free).
5 users thanked Alan Jay for this post.
philip hayman on 06/01/2013(UTC), Stephen Garsed on 06/01/2013(UTC), Guest on 06/01/2013(UTC), Pensionable age on 06/01/2013(UTC), jeffian on 06/01/2013(UTC)
Posted: 06 January 2013 16:39:12(UTC)

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All good advice but very frustrating - for children aged 5 - they are caught in the Child Trust Fund - and the parents/grandparents are simply not allowed to take out a Junior Isa for them.
My grandson has a CTF with Childrens Mutual - an organisation which is certainly not mutual, and only offers a patheritc FTSE all share traker. Trouble is - when you look round there is precious little alternative out there and I am inclined to instead invest via a simple Bare Trust or a fully fledged Trust. If only the government would free up these CTFs..!

Has anyone found a CTF provider offering a decent return and reasonable charges ?

A Bare Trust will at least offer some flexibility - if for example there is a crisis before age 18 the money could be accessed. And of course you can chooose whatever investments you want.
1 user thanked stisted for this post.
philip hayman on 06/01/2013(UTC)
Keith Cobby
Posted: 07 January 2013 10:50:26(UTC)

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Our son has a CTF (with F & C) to which we are contributing monthly. Clearly it is a concern that he will not use the money as we would wish, although we intend to educate him about finance and investments as he gets older.

One point I would make which is not usually covered on this topic is that he is at least guaranteed to receive the money. If it were to be held in the parents name it is possible that they would change their minds about handing it over or indeed might not be in a position to do so because of their own changed circumstances.

As a little insurance we are running a separate fund in our own names.
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philip hayman on 07/01/2013(UTC)
chris robinson
Posted: 08 January 2013 09:15:55(UTC)

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With kids of 23, 20 and 5 I've some experience of what actually happens and the need to invest for the youngest (I'm an older Dad) - and all the above points sound good to me particularly as they relate to structures and tax. One point on the CTF; they now have the same investment limits as JISAs and, as far as I can see, are very similar. We've gone for a 'non stakeholder' CTF and put the max in each year and invested into some boring (in a good way) UK funds via a private client stockbroker (Killik). We've also set up a bank account with Metro bank because they actually accept birthday/Christmas cash and cheques over the counter (unlike the post office which is what I used previously), provide a money box, a dead whizzy machine that counts the coins putting them straight into the account and they add a bit if you save regularly (I don't work there).

To balance this my prejudice is to go for regular savings in relatively higher risk and more volatile funds to benefit from the effect of pound cost averaging (your money buys more when prices are down hence average price is advantageous) and the long time horizon. So regular saving investment trusts with exposure to Far East etc. The magic of compound interest does the rest.

He'll get access to help fund university (if he gets in) and I intend by then to have given him some 'paper control' so he understands the mechanics and, if I'm lucky, a bit about deferred gratification.

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stisted on 08/01/2013(UTC)
Dividend Income
Posted: 08 January 2013 09:37:18(UTC)

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For a general introduction on investing and (grand) children see: http://www.littlesavvyre...r-children-to-get-rich/

"This report specifically focuses on how you can help your children to accumulate wealth and how it is not difficult to do this. You need not be a financial expert or even be overly wealthy to help your children to become well off. This Savvy Report can help you to change your child’s future for the better and to do so starting right now.Essentially you will help your children to learn how to help themselves."
Posted: 08 January 2013 10:03:30(UTC)

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Chris - thanks for your comments and interested to see Killick invloved with CTFs - I think I glossed over them a while ago as too expensive an option ?
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