Investing Trust Funds(8 Posts)
My mother died and her Will set up a discretionary trust (my sister and I being the Trustees) for her five grandchildren, together with a Letter of Wishes setting out her wishes and the reasons for them.
Originally she had left an equal sum to each of her grandchildren but changed her Will to form the Trust as one granddaughter is in a very abusive and controlling relationship and not only did she not want GD's partner to waste the inheritance but she also hoped that if one day GD leaves the relationship, the money would help her get back on her feet again.
Could people please suggest the best place to invest it. Distributions have been made to those over 18 which leaves £10,000 available for one GD who will be 18 next year and £10,000 to be held in the Trust for the GD in the abusive relationship. I thought Premium Bonds as the capital would be safe and there is a chance of a win, but Trusts cannot invest in them. Stocks and shares can be risky and Banks/Building Societies have such low interest. Any suggestions would be gratefully received. Thank you
The problem you have with this investment is that you face market risk if you go into the stockmarket but if you don't and just put it in a safe deposit with nearly zero interest rates then inflation could eat its real value away over time.
I run a large trust fund and face this dilemma all the time as do all trustees in the present post-financial crisis environment. You will have no doubt seen the extreme volatility in the stockmarket in recent weeks.
Often the best thing to do is use money like this to pay off any debts the person has. If she has credit card debt that will save her 30% interest per annum and increase her financial independence?
Thanks for the reply BetaTest. It is reassuring that it is not just our lack of financial expertise that is making investment decisions difficult.
I understand they have considerable debts. She has a well paid, responsible job and had been saving for a mortgage before she met him but now all that is gone and they are in debt which doesn't appear to worry him. He somehow "persuaded" her to consolidate all their debts (the majority his from before they met) in her name with the argument it would improve his credit rating and wouldn't affect hers as long as she kept up the payments (he doesn't work apart from a few jobs that haven't lasted long) and said that if she had any faith in their future together there was no problem. He seems to have such control, hence the change in my mother's Will. The problem with paying off her debt is that, from experience, her family know he will manipulate her to maximise borrowing again afterwards.
soggy - I did wonder whether she had any financial independence and whether she had taken on his debts.
Again this is not an unusual situation for a trustee with a beneficiary who is financially irresponsible or who is under the influence of someone else who is.
In this situation you are obviously better to keep the fund away from them until a real need arises - especially if the original settlor (i.e your mother) stipulated it.
For a relatively small sum like this you could just deposit the money with a bank in a 2 year fixed term account and rely on the Govt guarantee if the bank goes bust.
My own position as a trustee at the moment is investing in short term UK Government Gilts (i.e UK government debt) in the expectation that the stockmarket will fall further and that deflation will take hold so preserving capital for the next 2 years is my priority until I can re-invest when the stock market is at a much lower level and with little risk in the meantime that inflation will take hold in any significant way. In fact I think deflation (i.e. a general fall in prices) is more likely than inflation over the next few years. This is of course all speculation on my part and involves some risk which I have no choice in taking.
I have too big a fund to use bank deposits so I buy Govt Gilts but you need a stockbroker for that and I think too complicated for your needs.
Whatever you do dont leave the money with the solicitor or pay a fund manager to manage your money it ill cost a lot and frankly for a simple investment like this it is not necessary.
Thanks for the advice and support Beta
Can I ask who sets up Trusts? My DSs, 14 & 16 are each about to inherit £50k from their GM. DH and I will be the Trustees, but is a Trust a bit of paper lodged somewhere with some official body? Something legal that says DH and I are controlling and managing the money for the benefit of the DSs until they come of age? Something the DS could call upon in the event of our financial mismanagement? (Unlikely! )
With £50k each, would you suggest Govt Gilts? I am no financial expert at all but my reading of 'the situation' is that inflation will not necessarily follow (look at Japan!)- or the highest percentage paying bank account that a minor can hold?
In my case, and as I understand it, the Trust is set up by the Will (and therefore by the death of the benefactor - ours is known as a Discretionary Will Trust). It is therefore the responsibility of the Executors and/or their solicitors to organise. It has proved a bit more complicated than anticipated - particularly in view of the relatively small amounts of money involved. In order to open a Trust Bank/Building Society Account, for example, you not only have to produce a copy of the Will, and proof the Trustees say they are who they say they are and where they live but also proof of identity, address and birth certificate of all the beneficiaries named in the Will - slightly more of a palava in our case as two of them live in Australia. The tax situation with Trusts is also quite complicated as annual returns have to be filed. We haven't got that far forward yet but I understand HMRC takes 40% tax and there are rules where the beneficiaries can claim back some when they receive it if they are not on the 40% tax band. There is also some sort of valuation which tax is due on after several years - but I think our capital is not going to be great enough to fall into that category. We had a meeting with our solicitor to explain things - cost chargeable to the Trust, not the Executors - and will have another with him in due course just to make sure we are doing the tax part right.
I hope the above is helpful - different kinds of trusts might have different rules but it is not as simple as I had thought and a brief meeting with your solicitor would help to clarify your particular situation.
We were in a similar position Draylon, but - with Mum's agreement - ended up putting the money for our DC (then around 10/11) into a savings account, and not a Trust. Although we are risk averse, and the money didn't grow hugely, it did increase and was safe.
We were very careful with the DC and didn't really talk about this money until they were older, but DS is interested in investment, and eventually bought a BTL which gave him some income throughout uni. DD doesn't like to talk about money (!!!), so hers is still sat there gaining little bits of interest.
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