Investing DCs inheritance & dependants pension

[LottaChocs]

My DCs DF died intestate a couple of years ago, consequently DC have inheritated around 70K each and a dependants pension of around 5K a year is paid to me, for them (and will continue for 10-12 years).

So far I have saved all the pension payments separate to my own money & we live off my wages, but I'm starting to think it would be better to use some of the pension towards supporting them now (as their DF would have) and save some of 'my' money for them, so I'll to be able to gift/support them later on with a bit more control than just handing over a huge sum at 18 .

Id really appreciate hearing how other people would handle the whole situation - both investing the capital & dealing with the pension? (More of a sanity check, not advice) Thanks!

I would putting the inheritance away but keeping some accessible come through time they are 18.
So some may be going into pension (children can have £2880 go to pension each year, it it gets tax relief meaning it becomes £3600). That is a very long term play, as they won't have access to it for 50+ years assuming they are under age 10 now.

Some I would be using for Junior ISA for when they are 18, with the idea at that point that they use a little and continue saving the rest.

Some for living for today - you may want to allocate some to extra curricular educational and sport activities.

Some to go towards the household costs and childcare. This is where the payment you are getting is more appropriate to be used, which would free up some of your income to be used towards your future - such as more to your ISA and Pension.

Try to find a balance between putting money away for the future and using some for today.

If they are each going to have access to £70k plus accrued investment returns when they turn 18, then the most important thing is to teach them from an early age, and over the coming years, how to manage money!

For an 18-year old to get a £100k+ pot (estimated that figure because you said 10-12 years, and assuming it'll get invested meanwhile), it can be a wonderful or a terrible thing. You can help make it more likely to be a wonderful thing.

I’d be very careful about what you do with their money. I would think there are tax implications for you if their pension is actually being paid to you. I know when my sister died, her works pension went to her children not her partner, and it had to be paid into accounts solely in their names - I dealt with all the financial stuff at the time as her dp was in no fit state to do so following her death. He wasn’t able to access their money at all. They each got the pension payment until they left full time education; for one of them that was when he was 23.

What were the conditions of the will? Was the £70k left in trust or released to the children when they reach a certain age?
How old are the children? Investment decisions generally depend on the length of time the money can be left invested.

@Candleabra

What were the conditions of the will? Was the £70k left in trust or released to the children when they reach a certain age? How old are the children? Investment decisions generally depend on the length of time the money can be left invested.

OP says he died Intestate

Oh apologies, I missed that.

Well if you can definitely use some of money now if you need too to help ease their child hood and make it better for them with a tiny bit more financial Lee way, if your wage isn't enormous of course.
Yes to spreading money around, a little in a sipp, pension but some in a cash isa to use for sundries when older and capital, most of it in junior stocks and shares isa then smaller amount in regular bank account and finally some in pb.
Lots of pots everywhere for different things.

@YankeeDad this is definitely one of my biggest concerns! If they take after me there will be no problems, but at least one shows much more impulsive behaviours in general and im not sure how much nurture can overtake nature on this & really worries me (hence trying to limit the impact as much as possible by using some of the pension to support them now and 'replace' that with money that i dont have to hand them straight away at 18).

@Soontobe60 - in this case there were no rules about pension part being paid directly to their accounts nor anything provided in the way of guidance about use (tho clearly I want it to be for them/their benefit!). The savings accounts they currently have had to be opened jointly in my name anyway due to their ages (think this might change at 12?) so I would still have access if it was. I dont believe there are any tax implications for me as it goes into a zero interest account at mo.

@LottaChocs

Have you saved the pension for them in their names or is it saved separately, but in your name? Anyway, given what you've said I'd keep it in your name.

I would use some money to pay an IFA, to be honest, as decisions you make now can have big implications later. This would be a totally justifiable use of "their" money. The 70k is theirs for the long term.

I would see the 5k as for ongoing living expenses now, like a form of child maintenance. So in my view it's yours to use for the family and expenses. Which includes your own present and future financial provision, as well as savings for them, though in my head I'd see that as coming from your earnings iyswim. It's like the MN concept of family money. Just because you didn't directly earn it doesn't mean you have no rights to it. I'm sure you have had to give up plenty yourself in these circumstances.

FWIW my brother lost his wife with 2 kids. The financial consequences were very good for him and have afforded him life choices I could only dream of. Which was so necessary for him to nurture his sons and himself under those circumstances. I think it is great he prioritised their current needs not just saving money for them. As you know, kids need a lot more than money!

Your ideas sound very sensible.
Your DC will probably have access at 18 and little you can do about that. A former colleague of mine had that issue. Her DCs money was administered by the trustees of the pension scheme. Originally DC were to have funds at 25 but trustees decided they had to know about the money at 18 so they could apply to them for it if they were in financial distress.
Spending the support money and saving some of your own money for them is a really good way of mitigating that. It's there to support you in bringing them up so paying for living costs and holidays is really ok

@Starface - yes, the pension money goes into an otherwised unused account in my name, so its separate but totally accessible and would leave a clear audit trail if anyone did want to check it sometime. Lump sums are spread accross a couple of accounts in their names (well, jointly in my name). I like your concept of comparing it to child maintainance.

@SpiderinaWingMirror - there are no trustees involved at all for us. Their (young adult) half-sibling had to take on probate/admin & once complete was very happy for me to undertake ongoing management of the younger ones financial affairs with regard to inheritance. Theyll be contacted by the banks at 18 so will definitely find out then regardless!

I want it all togo to them in the end - just not necessarily at 18! I dont 'need' their money as such - I was never financially dependant on their DF. We have a comfortable life on my wages, nice home, reasonable pension & rainyday savings (very very lucky with all these). There is potentially a longer term impact on my career/long term income as cant take up some opportunities that I would have if their DF was still alive and might stagnate a bit staying in a role that offers me amazing flexibility. Using the pension where appropriate and saving 'my' money insted is totally about damage limitation - if they manage to blow the lumpsum part during their uni years, at least I'll still be in a position to give them a chunk of house deposit at 30 or whatever. Its reassuring for me that no one has said this would be immoral anyway!

I think their lump sums have to stay in no-risk savings despite this meaning it reduces in real terms. The question now is how to get the best balance of risk vs gain for say £400 a month for the next 10 years.

Ok, so although you are saving it with the intention of use by them, it's in your name.

I am no financial expert, a pure lay person. In your circumstances I would definitely have involved a professional at some point, even just for a consultation, even if I went on to manage everything myself. Getting those decisions right makes a big difference. I would definitely be checking about that 70k, as 10 years loss against inflation could turn it from a house deposit to half a house deposit, which is a significant loss in usefulness.

I think what I would do is invest most of the pension proceeds within an S&S ISA wrapper. It is then totally accessible should you need it, won't be subject to further tax (except inheritance tax, which is something to think about). Given that they have an (overly safe) 70k, you can take much bigger risks with this. I would view the whole thing as one portfolio, so this can be the risky bit of the money. I would go all shares, but in the form of a fund or etf. I have seen Vanguard highly recommended as a provider for low fees for both platform and their in house funds, which is a big consideration here. I don't use them myself but if you pop onto the FIRE starter thread people will tell you their experiences and recommendations. They will help you find one for your timeframe. This will help mitigate loss on the 70k. You will also be able to control when it is given to them, which sounds very important here. The major risk is inheritance tax, but presumably if that became an eventuality they would be inheriting from you anyway.

I would consider putting a small amount in a pension for them, like literally 40 quid a month or something. If one of them is impulsive and this might trip them up in later life, relatively small amounts invested now could grow enormously over their lifetime, meaning they have to save less later and meaning they are less likely to have a penniless old age. Its locked away so they can't touch it. My own father started a pension for me at 18, which has really reduced what I need to do now.

If you don't have a will, use some of this money to write one.

Finally one of the biggest investments you can make is in your own financial education. This is not expensive, but takes time. It will be useful for guiding them in the future, as well as for yourself. I found it hugely empowering to understand my own money. Understanding investment via funds and etfs, and the power of compounding, are hugely important. There are lots of podcasts out there. Again, the FIRE thread has recommendations on it.

Two last things. University fees (even just topping up the loan as expected) are expensive. You might use some of the pension proceeds for that.

Also, what you are doing here is not illegal, and definitely not immoral. You are doing the best you can for your children within your own knowledge. I really struggle to see how your thoughtfulness, loving and caring approach, trying to think widely, could be problematic.

£70K lump sum - I would use their annual JISA (£9K) & JSIPP (£2880) allowances over the next 5/6 years. Start reading up on personal finance and what funds to invest in - you don't need to pay a financial advisor to invest relatively small sums. It's not that hard to select a few investment/unit trusts for them. If that's too daunting, there's always premium bonds up to £50K each.

As for the £5K pa dependants' pension paid to you, do with it what you like. If you don't need to use it, maybe you should set it aside as emergency savings (3-6 mths' living expenses). There is no reason why you shouldn't put it into your own ISA which you can still access for their benefit.