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Ok....so my sister died earlier this year and the trustees of her pension/death in service have said that the fund is going to her son and that it needs to be put into trust until he's 21, he's 17 at the moment.
My other sister and I are to be trustees of the account until released.
Anyone know anything about this stuff and how to choose a good account. We're probably going to get some independent financial advice, but just thought I'd ask as I know now....
It's a lot of money.
I had a simmilar thing when my nan died, I had to hold about 70k for my niece for about a year, as the will stipulated she would only get it once she was 21yo.
I was executor, but I hired a solicitor to do most of the admin as there were multiple beneficiaries..
Anyway.. long story short, after the estate was settled and paid out etc, I bank with barclays, so I opened an 'executor' account attached to my main accounts, so it didn't have any tax impact on me, and just held the cash there until she was old enough, and then just transfered it to her.
Essentially an 'escrow' account, for want of a better word.
The only downside to doing that, is that type of account paid pretty much zero interest. But then as executor, you have a legal duty to keep the money very safe.
So for me, it worked well as it was all totally transparent, and her money was absolutley tracable back to the distribution of the estate, and totally seperate from my accounts as executor and a beneficiary of the estate.
A good magazine buy: Estate & Succession Planning Monthly clear, practical advice for setting up a trust or custodial account for a minor following a parent’s death.
But then as executor, you have a legal duty to keep the money very safe.
This is not true at all. Your duty is to invest the money appropriately, this may in some cases be "very safe" (and I don't disagree at all with your behaviour in your specific case) but it may be a portfolio of investments depending on the sums and time frames involved.
Sounds like a cope out, but I'd suggest a chat with a financial adviser and get a really good solution. Ideally low administration fees, but a decent return so the money grows. 5 years isn't long term but he might then decide to dump a portion of it into a sort of savings or investments solution that can grow as he ages...so having something that is growing may let him see what could be possible.
On a separate note, can't be a good time, so hopefully you and your family are doing ok.
Cheers all. Yeah not been a great year for any of us, but my nephew is starting to do better and get some of his confidence back.
Going to look into a financial advisor. It's just over 200k so definitely worth being serious about as it could properly set him up for the future.
But then as executor, you have a legal duty to keep the money very safe.
This is not true at all. Your duty is to invest the money appropriately, this may in some cases be "very safe" (and I don't disagree at all with your behaviour in your specific case) but it may be a portfolio of investments depending on the sums and time frames involved.
I wouldn't like to have a conversation with a beneficiary after sticking all thier inheritence on 'beyond meat' stocks and losing the lot! 🤣
Does it remain as a pension - i.e. not accessible until nearly 60, or is it converted to cash?
If cash, start paying the max you can into ISAs - £4k into a lifetime ISA once he's 18 (which will be boosted by £1k) and £16k into normal stocks and shares ISA, investing in a passive fund - A J Bell or ii platforms have low fees/charges.
In 5 years, he'll have over £25K in the LISA for a deposit to help buy a house, or if he has inherited a house, it gives a kick start to his own pension planning and means he can't access all of the money too early. There'll also be £80-100k in the ISA, which will grow tax free.
The tax on trusts is pretty high and you may not be allowed to use ISAs while the money is in Trust, but should be able to withdraw for investment.
Does it remain as a pension - i.e. not accessible until nearly 60, or is it converted to cash?
If cash, start paying the max you can into ISAs - £4k into a lifetime ISA once he's 18 (which will be boosted by £1k) and £16k into normal stocks and shares ISA, investing in a passive fund - A J Bell or ii platforms have low fees/charges.
In 5 years, he'll have over £25K in the LISA for a deposit to help buy a house, or if he has inherited a house, it gives a kick start to his own pension planning and means he can't access all of the money too early. There'll also be £80-100k in the ISA, which will grow tax free.
The tax on trusts is pretty high and you may not be allowed to use ISAs while the money is in Trust, but should be able to withdraw for investment.
My understanding is if you don't use it for a qualifying house purchase, it essentially acts as a pension and you can't acess it until age X*
*Well you can in an emergency, but I belive all the goverment bonuses get removed so it's a really bad idea to cash it in. So a normal S&S isa might be more suitable if you envisage needing the cash, but of course that doesn't come with the bonuses that a LISA does.
That's correct, but if he would be a first time buyer, it's a good deal.
Why does it have to be held to 21? If he’s in England, Wales or Northern Ireland, he’s an adult for this purpose at 18 (16 in Scotland) and I’m not sure that the pension or death in service scheme can stipulate that it has to be held in trust to 21 (unlike, say, a testator who can say that in their will). Certainly the advice from our solicitor (we run a 20,000 member pension scheme) is that if the beneficiary is over 16/18, as appropriate, we cannot insist on a trust, but equally where we do pay to a trust for a minor, it vests on reaching financial majority.
I would think this is pretty important since if the money is held in trust to 21, there may be limits on how it can be used to help with (eg) university costs (the need for this will depend on what support he might have from his other parent).
Presumably his father isn’t in the picture if he’s not to appointed a trustee? We don’t set up 'formal' trusts for small amounts because the costs involved are out of proportion (I think you’re looking at thousands a year) but £200k is definitely at a point where it would be worth getting some professional advice - both on management and the 18/21 question.
The Trustee Act 2000 requires that the trustees take professional advice about the investment of the trust funds. There is good guidance on the sort of investments that you can make - the law says that you can't take too much risk with the funds.
The beneficiary will be absolutely entitled to any income produced by the fund from the age of 18 so you might want to consider investing for growth rather than income. In any case 4 years is a bit of a short run for equity based investments so you may well find your options are limited.
Make sure that the Advisor you speak to is qualified to advise on trust investments - not all of them are.