Children left money in trust

[junipertree2]

My children, aged 10, 12 and 14, have each been left £20,000 in trust by a relative, and their father has been given £30,000. My understanding is that he and I will be trustees.

Together, we have discussed how £70-80K would buy a small investment property where we live, and really it seems to be a more sensible use of their money until they come of age. I don't know how much value their money would accrue in a trust, but surely it would be better in property, in a house which could be sold when my oldest is 18, or used to generate a bit of rental income depending on the market?

The guidance with trusts, which I don't know much about, is that the money should be 'invested wisely'. Does anyone know if this includes buying a house? We wouldn't be living in it at any point - it would purely be to let.

We were in a similar position, and when we looked into property investment we were told that in theory - if the investment didn't pay off - the DC could have sued us for making reckless decisions. We took the boring route, but at least it meant the money was there for deposits when needed.

Oh okay thanks - so in theory it's not completely out of the question (don't want the solicitor laughing at me)?

My logic is that even in the (unlikely) event of a catastrophic house price crash, the kids would always have a house to live in and share, owned outright, no rent of their own to pay etc.

put the 80% of the money in an ETF (exchange-traded fund) which tracks the stock market with low annual charges. That is the simplest investment with good long term prospects. you can get ethical ETFs (e.g. no fossil fuels) which I think are great. Look up Vanguard ETFs.

put the other 20% in bonds or cash which is less volatile but also has a lower long-term rate of return.

I don't know that it's true at all that the money would be better invested in property than a 'trust' - what do you even by a trust, that's just the legal mechanism whereby the trustees/you look after their money for them until they're adults, it doesn't come with any kind of defined interest rate, unless you are talking about a specific trust fund bank account? Please take some proper professional advice, as trustees you are responsible for the decisions/risks you take on behalf of the DC and if you don't know much about investments it seems sensible to let someone who does advise you.

In brief, yes you can get good capital growth from property but it depends on a number of factors including the general state of the economy (hard to predict for the next 20 + years), specific factors relating to the area (e.g. whether the area is developing and growing or static) and specific factors related to the property itself e.g. is it a house or flat, new build or period, on an estate or busy road or similar - it is not guaranteed you'll definitely see better growth on a rental compared to a managed investment fund, premium bonds or other investment vehicles - it's all about risk/reward appetite, and where it's not really your own money you are using it's reasonable to take a much lower risk.

Plus a rental property is an active rather than passive investment in that you will need to be actively managing it to ensure maintenance of the property, finding good tenants who pay rent on time and don't trash the place, insurances, certificates etc all kept up to date - compared to other investments where you literally sit back and let the money grow. It is also not a tax efficient investment (not so applicable for your DC but may be very relevant for your DH) - are you knowledgeable about property management, do you have the time and emotional energy to be constantly managing the rental, it's much harder than most people think?

A final consideration is that the trusts for your DC will (presumably) mature at different times - when they are 18/21, whenever, and the DC may quite reasonably want fairly quick access to that money to pay university fees or buy their own house to live in or whatever, how will you manage that with needing to sell the house (may take time, tenants may need to be evicted etc.), then what will happen to the remaining trust fund money for the other DC? I'm really not sure how it would work with 3 separate funds each investing in the same property, I think it would be possible but even with you being the trustee for both it's not as simple as combining the money and treating it as one big pot, your DCs money needs to be separated for them as individuals and accounted for separately...

Basically I'm not saying it's a absolute no-go but you seem to be thinking it's investing in property or nothing/the money sitting in a current account, whereas there are lots and lots of different investment options which can earn good returns with different pros and cons/risk levels. I would go and talk to a good IFA as a starting point before making any decisions!

Individually, your children have been left a sum of money and I think you might come unstuck lumping it all together tbh. What happens when one wants their money to go to uni or travel the world or spend it on wine, women and song? Do they have to badger the other two to sell the rental property? Please take professional advice.

@parietal

put the 80% of the money in an ETF (exchange-traded fund) which tracks the stock market with low annual charges. That is the simplest investment with good long term prospects. you can get ethical ETFs (e.g. no fossil fuels) which I think are great. Look up Vanguard ETFs.

put the other 20% in bonds or cash which is less volatile but also has a lower long-term rate of return.

Will do. I will also take some advice from an IFA, I think. Thanks.