Junior ISA help!(10 Posts)
My husband and I are considering savings for our children, ages 1 and 3. We are almost sure that we want to go with a stocks and shares junior isa although I am not entirely happy that a large sum of money is then effectively handed over to an 18 year old. I would love to be able to say that my children will be mature and sensible enough by then not to waste any of it but who knows if that'll be the case.
Does anyone know of something similar that doesn't give an 18 year old full responsibility like this?
Thank you x x
As far as I know, any standard savings account that is held in the name of the child would be theirs once they turn 18. If you wanted it to be inaccessible for longer than either just don't tell them about it or you'd probably have to instruct a financial advisor or solicitor to construct a trust fund or similar that they can only access at your preferred age.
I'm putting money into a SIPP for my children rather than a junior ISA because, like you, I don't want them to get a big chunk of cash at 18. but that also has limitations.
The only real option is to put the assets into trust. This is expensive though, and I doubt it would be worth it. You would also miss out on the potential tax breaks of having funds in an ISA at 18.
The simplest way would be not to tell them.
You cant 'just not tell them' as the institution holding the money will write to the DC just before their 18th birthday to tell them of their money.
In our case, we have S&S ISAs via Hargreaves Lansdown (who I would highly recommend) with myself initially setting up online access to kids accounts.
In the weeks before my DS turned 18, he got a letter about the ISA (he knew anyway) and had to set up new login details for the website. All my login details were shut off on his 18th birthday.
So unless you want to intercept their post before they are 18, it is difficult for them not to find out.
Your best approach is to teach them how to be financially savvy, and maybe introduce them to the idea of the ISA being their house deposit or such, before they turn 18.
My DC got an inheritence from a cousin of mine 2yrs ago. DS got a very large cheque just after his 18th birthday. Fortunately he has taken on board our suggestion to drip feed it into his ISA and not touch it till he wants to buy a house. All credit to him, he was keen to earn from his 6th form job still, and now looking for similar work having settled into uni. I think education is the key, not secrecy.
A letter can only be sent to the address on the account so of course you can prevent them finding out if you really want to by sending the mail elsewhere.
Education is more sensible, but that wasn't the OP's question.
I had the same dilemma as you OP, when thinking of how to save for the kids. I considered junior ISAs, and discussed them with other parents. No-one I spoke to was prepared to use them, as they simply didn't want a large amount of money being handed over to an 18 year old with no strings attached.
I decided to open a stocks ISA in my name instead. I now save each month into that ISA, the intention being the money will pay for university/training/business start up costs, whatever is appropriate at the time really.
If one of my kids says at 17, "I want to study X at Y", or "I want to start a business doing Z", then I'll help with the money. I need a veto on how the cash is used - although I hope to not need it.
It's worth noting though that in the event of your death, your Isa would be subject to Inheritance tax .
They get you every way which.....
True innagazing. Also, the savings are counted as mine, so would stop me claiming certain benefits, etc. if I fell on hard times.
AFAIK the only alternatives are:
1)Set up some kind of discretionary trust. Assets in a trust are shielded from inheritance tax, but the trust must be managed (someone has to prepare financial statements, pay taxes, etc.: all of this costs money) and it incurs high taxes, up to 45%.
2)Keep the funds in your name. If you are in the highest income bracket you will likely pay the same taxes as a trust would, otherwise you’d pay less. You won’t have to pay the fees for someone managing your trust; unless you have squillions invested in uber-complex financial products, you should be able to file a self-assessment tax return online yourself. These funds will not be shielded from inheritance tax; however, depending on your circumstances, a life insurance policy (if you don’t already have one – I think every parent should have one regardless!) can help limit the impact of inheritance tax. Writing a life insurance policy into trust, so as to exempt it from inheritance tax, is typically free.
Of course with both options you give up the tax-free benefits of a junior ISA.
There is a reason why option 1 tends to be favoured by the very wealthy – for ordinary people it is probably not worth it.
How much are you willing to invest? If we are talking about very big sums, it might be worth exploring option 1, and pay the fees of a professional advisor who should be able to explain all the details.
Otherwise you could invest, in your name, in something like low-cost tracker funds or physical ETFs, ideally which don’t distribute dividends but accumulate them, so you wouldn’t have to pay tax on dividends; you also wouldn’t pay tax on unrealised capital gains – only when you sell the assets. A tax advisor should be able to tell you if/how you can donate the proceeds (probably subject to the 7-year inheritance tax rule) once you are comfortable your kid is mature enough. Also, bear in mind rules may change a million times till then!
Education is important, but I think we must be ready to accept the possibility that teenagers may behave irresponsibly. Also, there are cases of siblings brought up in the same household, with the same type of education values etc, who turn out completely different. Education is important but is not the sole determinant of a teenager’s attitude!
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