Investing money left to child

[WobblyLondoner]

I'd welcome thoughts on what best to do in this situation. My (very lucky) DS has been left c £35k by his granddad, and in addition his grandmother would like to set up a Junior ISA for him and pay in the full £9k a year until he is 18. He is 14.

I'm trying to work out what the best option is for the £35k. I've quickly realised that there are very few accounts offering more than 1% or so that will accept that amount of money in a child's name - the best I've found is a Virgin one that will take up to £25k at 1.75%. An alternative I've wondered about are premium bonds - I know there is no guarantee of anything but my mother gets 1.5-2% per annum on her premium bonds.

To increase the range of options open to us I was wondering about setting a savings account up in my partner's name, but with the intention that the savings are all for our DS. I pay tax at the higher rate otherwise I would do this. We would need to check my mother was happy with us doing this - if she's not that would rule that option out. But I'd far rather having something in my DS name - and would welcome any thoughts on obvious options I'm missing.

On the ISA and what to suggest to my mum, the obvious decision is cash vs stocks and shares (or both). I'm assuming stocks and shares but I'm aware that my DS is 14 so there isn't that long to invest for and I'm assuming we are in for a bumpy ride.

I feel embarrassingly new to this and would welcome any thoughts on this as I mull it all over. I've been looking at the main personal finance websites like moneyadviceservice, moneysavingexpert & Which but if there are other resources you'd recommend I'd love to hear them.

What are the terms the £35k was left on - was it left to you/your partner with the wish it be for your DS, or actually to him directly? If the latter, is it in trust and if so who are the trustees? If it's been left to your DS, in trust or otherwise, you can't invest it in your partner's or your name so far as I know. If you aren't sure on this I would check with a solicitor before doing anything else!

Otherwise it seems you are on the right track - premium bonds are generally a safe low risk/low reward option so if your main aim is simply to safeguard the cash that would be a perfectly viable option for the majority of the money. Personally I wouldn't put the whole lot into bonds as I would probably invest some of the remainder into a more medium risk option to maximise returns - now is arguably an excellent time to invest in stocks/shares if you don't need to access the money for 5 years ish as prices will be low and long-term growth can be expected. Don't try picking your own stocks though if you are a novice and it's not your money - go for a managed portfolio that allows you to set your own risk appetite. I use Nutmeg which has a very easy online platform...

I would ask your DGM to give you the 9k to a designated account that she is co signee of, or something, but not in the name of your DS.

He is looking to get unfettered access to £70k+ (35+4x9+interest) at 18. That is a huge amount of money. I'd think it would be better to have more of it inaccessible until 21 (or older) unless you agree it is for a sensible reason.

Also, it needs to be someone other than a parent who invests, I think. It used to be the case that if a parent put money in an account for their child, the interest was counted as the parent's income for tax purposes, but not if a grand parent did.

Thanks all.

To answer @maxelly's good question, I am checking this as there has been some uncertainty over the status of the initial investment (which was in a 'First Steps' account operated by Alliance, now Interactive Investor). My dad's intention was that this investment could be transferred to someone else to administer on his death but II now say this is not possible and that it has to be treated as part of his estate and sold. It's been ridiculously hard to get to the bottom of. I will double check this one more time with the solicitor.

Stocks and shares would be a much better return. You could use the time between now and when he ‘gets the money’ to explain to him how investments work and how it should be left and how he should manage it post 18.

My parents gave me a lot of money through investments and introduced me to investing and growing a portfolio slowly. They also made it very clear that if I just spent it all that was my choice but nothing else would come my way at all. It worked. I am now sitting on a very sizeable amount which I took over managing myself. In turn I have invested for my DC from a very young age and the same applies.

Do not put in a savings account in your partners name. You might trust them now but they could keep the money that is meant for your son.

Thanks all. We are clear now that the £35k will be a lump sum we need to invest, in addition to the annual JISA allowance.

@LampGenie am attracted by what you say and could see that working with the JISA.

I'm really perplexed by how few options there are for us that would allow us to do something with the lump sum, beyond the premium bond or basic saving accounts. I can't see any way of investing this in stocks and shares in his name unless we do it under mine or my DP's name and use our ISA allowance.

Re a PP, I trust my DP completely - he honestly would never take this money away from his child (am conscious some will be rolling your eyes at this). But I'd really rather not go down this route if there are better options out there.

@WobblyLondoner I'm assuming stocks and shares but I'm aware that my DS is 14 so there isn't that long to invest for and I'm assuming we are in for a bumpy ride.

A junior S&S ISA will automatically convert to an adult one at 18, continue growing and be available for additional investments, so your comment above doesn’t make sense. Anything invested in the next 4 years will continue to grow until he decides to draw it out, hopefully not at 18.

Make sure the 9k is drip fed in monthly, to smooth out the peaks and troughs of stock market, and it should be fine.

I do think having money in Stocks and shares funds, where he actively has to sell them (rather than just withdrawing from a Cash ISA in a branch) is a good way of reducing the risk that he will draw it all out at 18.

My DC had S&S ISAs from early teens, that we paid into, and when they got an inheritance at 15 & 17, we just continued drip feeding it in, up to and after 18.

It helped them look at the inheritance as a long term pot of money, to be drip fed into the ISA and used for a house eventually. We also talked to them at length when they got the money and since, about how fortunate they were and if spent frivolously, it wouldn’t be replaced. 14 is certainly not too young to discuss future house or education costs with him.

DS - almost 23 - has gone one step further and started to invest directly in company shares, as well as funds, and enjoys monitoring them. Whilst receiving a large sum at a young age can be dangerous, it can also help them develop financial acumen.

As a pp asked, how the money was left will dictate whether any can be in your names. In my DC case, the solicitor was executor/trustee. DS was 18 when the money was distributed, DD’s money came to DH and I, but only after the solicitor discussed that option in private with her and we signed legal docs to become the trustees until she was 18.

Why not seek independent advice from an IFA?
There's also tax implications...
What about a Will too?

I would say the only tax implications are if the money goes into an account with a parents name on it, or solely in parents name, such that some of the interest is classed as the parents, AND that parent reaches the tax free Interest limit (£1000/500) for that tax year.

We fell foul of this.

Some of DDs money was in an NS&I account with all 3 names on it, until she was about 18.5. Despite our names being on the account as trustees, NS&I allocated the interest 3 ways and unfortunately DH and I also had a bond mature that year, so that the NS&I portion sent us slightly over the £1k limit.

I tried to argue with HMRC that all interest was DDs (even proving it all went into her bank account monthly) but they wouldn’t budge and I gave up in the end as the extra tax (

Of course you can invest in stocks and shares for him- it will be in the name of a trust for his benefit. The advantage of setting thus up is that you can decide at what age he will be able to tap into the fund- I’d strongly advise 21 plus so it doesn’t get pissed away. You need to see a financial adviser and a solicitor to do this properly. Do not hand it to your partner who could then spend it merrily with no real comeback!

Is your DP your Ds’s dad?

It isn’t only about trusting your DP. If the money is in his name it could be claimed if he went bankrupt, got sued etc. If the worst happened the money would be part of your DP’s estate, and in leaving it to your Ds (is there a Will? There would need to be...) could be subject to IHT.

Now is a good time to invest as prices on (many) stocks are lower so I would put at least some in some form of investment wrapper. Agree with pp that a setting up a trust seems like a good idea as he can then access the money at a later age.
I would also recommend teaching your son about investing, I think it's a great skill to have and will really are him up for life, there are loads of book on the subject. One I recommend is Warrent Buffet accounting book: Reading financial statements for value investing. It's a bit heavy at the end but really breaks it down to its basic in an easy way in the beginning and uses loads of good examples