How to tell children about trust fund?

[notveryhappyhere]

So, first of all I know that this is an extremely nice problem to have!

My inlaws are wealthy and have given my 3 children money in trust.(It's in their name so can be accessed by them whenever they like.) It was about £500K a few years ago but has done incredibly well recently and is now around £1m each. It makes me feel a bit sick to write it.

My children are teenagers and have no idea about this money. The eldest is 18 now.

We are quite well off, foreign holidays (when it was a thing), and the children are at private school. We are not flashy though and try to teach them the value of things. My eldest is at university and all of his Uni friends were at state school, he keeps quite quiet about his background and doesn't like us to spend money on him. If it is relevant, we are in Scotland not the SE England so this money is a huge amount.

I've always felt uncomfortable about the money as I worry that it might dent their ambition, send them on a wrong path as I've seen happen to others. It's a huge amount of money, especially to a teenager.

My eldest has really matured of late, but when they were first given this money he was going through a particularly silly stage (aged 14), failing at school and generally being immature which is why I was determined to keep it under wraps at the time.

Before when it was £400k to start with I felt ok about mentioning it to them as they got older, not making a huge deal out of it just 'some money for a flat/house' when you're older. But now it feels a bit of a scary amount to be honest.

Any advice? My husband (who grew up around a lot of money)is pretty relaxed about it all but it stresses me out!

Thanks and if you're going to give me a hard time this isn't the thread. I've had a tough week (death of a friend) and am just looking for advice on how to navigate this (very fortunate) situation that we are in.

Are there any legal repercussions to not telling them about it, if it's an asset in their names, once they've reached the age of majority?

@Nancydrawn good question. My eldest signed the tax return for the first time this year due to his age but we didn't really explain.I think my husband said it's to do with some money from granny. He's pretty chilled. I feel bad and deceitful now thinking about that.

I think there's a way to do it that's low-key, non-fussy, and makes it clear that this is long-term money.

I'd talk briefly about a trust and say that you'd like to have the money continue to be invested to take advantage of compound interest. You can mention that you saw that the managing the birthday money put a lot of burden on him, so you want to work with a financial advisor to make sure that it's invested properly.

That way you're honest, but it seems like something bigger for the future, rather than money for right now. (When the dust is settled, tell him never to sign a financial form without reading it the whole way through!)

I don't think you've done anything wrong by waiting until now, but as it's not bound up for adulthood (21, 25, 30, whatever), I think as a legal adult with potential legal responsibilities (e.g. taxes), it's important to be honest with him.

I went to a very competitive grammar school and 3 of my friends who received trust fund/inheritance at 18 years old have squandered it all. It changed them and they no longer had any ambition to do well at university and cultivate careers. Much smaller sums than your children would receive. I would prefer access once they have finished university and know what route they want in life and use that money to help facilitate a career, buying a home.

What trust fund do they have that has given a 100pc return over a couple of years?

I know you say you work in finance so I assume that you have set up appropriate legal and financial structures for them that will invest the money for them and be tax efficient, look at pensions etc .

(BTW I’d love to know where you have invested it that it’s doubled in the last four years ! )

Is your plan that they have access to the interest from this rather than the capital ?

If so, wouldn’t it be more tax efficient for your child who is 18 now to take income up to his personal allowance rather than for you to support him from your post tax income ?

Have you thought about how to protect their inheritance from the possibility of a bad marriage ?

Personally I’d not tell them about the capital, just that they will have access to some of the income. And I’d not tell them until they have graduated.

But of course this all assumes that you have set up an appropriate vehicle that allows you to do this.

We have family friends who were well off and their children knew they would never have to work for a living ( they had several times more money than your kids ). They were all given houses as soon as they were adults.

Only one of the three children had gone on to have a good career. One is a bit of a waster TBH, hangs around with young footballers and spends his money on clubbing, cars and holidays. He’s already had one disastrous divorce from a good digger.

One got married very young to a partner who treats her Ok but is clearly motived by her lifestyle - neither of them work. And the third has a good job in Finance and is happily married to a decent person from a similar background.

Basically the family money ruined two of them because it made them lazy / unambitious / bored and also it made them a target for unscrupulous partners.

The stock market is insane right now! If the trust had a smart financial planner, it absolutely could have. Amazon stock is up nearly 600% in the last five years, and same for Netflix; Apple at just under 500%. Hell, Tesla's up 2,500%.

Even if it's just a general index fund that tracks the S&P or Dow Jones, that's nearly doubled in five years. The SPY ETF has grown by 111%, for instance.

It's craaazy out there.

I’m sure you know that it’s much safer for you / the trust to lend them the money to buy their first property and take a charge over it than it is to give them the money to buy it.

I should add that I wasn't doubting the OP, I know people who have managed 20pc returns yearly. I was being nosey rather than goady.

What's the age difference between them, so if the youngest is 21, what would the eldest be?
Having 3 complicates it, as you'd have to tell them at the same time, but they will have different age related 'opportunities' as a result.

@Nancydrawn wise words, thanks!

@SonjaMorgan a big chunk in a particular investment trust that's gone through the roof over the time. We couldn't believe it either! I think there's also been additional cash added so it's not as much as 100% return. Not really relevant to the question so I didn't go into that level of detail in my OP. Any advice to add or just the nosey question?

@SonjaMorgan haha cross posted!!! Yes you are nosey

Yep @Nancydrawn - on the money!

@TheSpottedZebra 4 years between them all.

@C0RAL that's not my area of expertise but yes it was all done through lawyers and my father in law is very financially savvy. Income/capital is not something we've thought about but yes good point. Sad to hear about your friends. What a waste of lives. To have no drive, no motivation is a sad thing. I know even for myself when I went back to work after the children started school (I didn't need to financially) I felt amazing for it!

@Snoodleberry yes if you wouldn’t mind PMing me that would be amazing - thank you!!!

In terms of the investment, yes funnily enough a lot of that particular investment trust is held in Amazon and Tesla!

I would begin mentioning it now in a vague way. Such as when you want to learn to drive there is some money available for that or if an opportunity came up to travel during a summer holiday then there is some money put by for that.

Have you given them some financial education? Do they know how much things cost, mortgages, interest rates, properties? If not I would say this was item 1, with item 2 being setting up quarterly meetings with a financial adviser.
Don’t know about withholding it from them. I know why you’re saying it but it’s legally theirs once they reach 18.

OP, if I understand correctly, you didn't provide the most important information, without which, to be honest, all the answers are quite irrelevant: what kind of trust is it?

www.gov.uk/trusts-taxes/types-of-trust
There are various types of trusts; there can be a discretionary trust where someone else manages the money forever or till a certain time (till a certain age, till the person who manages decides the beneficiaries are mature enough, etc), and others (bare trusts) where the beneficiaries automatically have access to the money at 18 in England and Wales (at 16 in Scotland, no idea about NI).

In the case of a bare trust AFAIK there is no choice - the beneficiaries must be told at 18/16.

Speaking purely hypothetically, if I had to create a trust fund for children nephews grandchildren etc, I would NEVER create a bare trust.

The only exception would be if the beneficiary is already old enough (>14-15) that he can demonstrate, with a reasonable degree of certainty, that he/she is a responsible person. This limits the risk, but doesn't eliminate it altogether.

If the beneficiaries are young, THERE IS NO WAY TO KNOW WHETHER THEY'LL BE SENSIBLE ENOUGH TO HANDLE THAT KIND OF MONEY at a young age.

It is human nature to want to think that one's children are better, but they often aren't.

The world is full of stories of siblings who were brought up in the same family, by the same parents, with the same values, in the same context, yet one ends up a total **head and one doesn't.

Also, different people mature at different paces. Someone who is sensible at 23 may not have been at 18/16.

PS OP, if by "can be accessed by them" you mean it's a bare trust and you are in Scotland, it means at least the eldest should have already been told. Where is this money invested? Who is responsible for paying taxes? Are you sure that, by not telling him, you have not messed up his tax situation if he was supposed to file some tax return but hasn't?

I would wait until they were early 30s, have their solid friendship groups, probably a career plan, developed a hard work ethos, maybe have a partner they love who doesn’t know about the money.

@ParentOfOne thanks - it is a bare trust. I’d forgotten the name. Tax/law is not something I know a huge amount about. My family are not wealthy and I’m not a high earner myself.

It really went against my instincts to set it up this way. However the lawyer, my father in law and my husband all wanted to as it was the easiest and most economical way of doing it. Also at the time, we weren’t looking at this kind of amount!

All tax returns have been done so no worries there.

It’s good to get everyone’s views. I do feel more stressed now than I did to start. I think we will introduce the idea in a vague way. I’ll speak to my husband and in laws.

Are professional lawyers / accountants still involved? What do they say - is not telling your children (at least those > 16) even an option?

Is it possible to restructure the trust (at least the one for the

@OvertheRainbow88 waiting till they turn 30 has its own downsides, too.

Maybe someone might have chosen a different career path had they known they could have counted on that kind of money.

As in, say, you studied law, even though you really wanted to be a graphics designer, because you felt law would have been a more stable career. BUT had you known you could have counted on that kind of money, maybe you would have tried the graphics career design anyway. Just to name the first (stereotypical, I'll admit) example I can think of.

I actually think it’s deceitful not to at least start mentioning it.
It would be awful to miss out on an opportunity such as a gap year travelling because of expense and then find out a few years later you actually had the money all along.

@NeedToGetOuttaHere deceitful is a strong word. They’re not missing out on anything believe me! Part of the gap year was going to be working to save to travel and we were going to top up whatever he’d saved himself. I don’t want him squandering it on gap years etc... I’ve seen it happen to other people and it ruins a person. Saving to go on a gap year is something they should do, not just have the cash land in their lap! I feel very strongly about this. I don’t want my kids to grow up with an entitled attitude to money.

Having just discussed it with my husband he’s told me the bit that has done very well is actually not in the bare trust but in a different trust not accessible until they’re older. How complicated! I had thought it was all in one place. I’m sounding completely financially incompetent which is ironic considering my job (can’t say! ) So we’re going to sit down and look at it and make a plan tonight.

I couldn’t think of a better word to use.
I don’t envy your dilemma, I also have 3 DC I and couldn’t imagine having your predicament. It’s hard because I imagine they all have different personalities.