Inheritance for child

[moneyfirson]

My child is receiving a monthly pension of around £1000 from their deceased father’s pension. It’s paid to me due to their age but once they are 16 or 18 it can go direct to them. The purpose of the payments according to the company is for every day living costs so I guess it’s like child maintenance. I plan on putting most of it into a trust fund because it’s more money than I could spend a month on them even allowing for treats and I want to invest it for their future.
My child doesn’t know about the extent of the money. They know their dad left them some money and they have been bought an iPad with this to see them into secondary school and mainly for homework and a couple of games.
Would you allow purchases for their special interest (is neurodivergent) from this money or would you bank the difference between what was maintenance and what is now paid? I hope that makes sense. It’s been a long day.

Consider if the neuro divergence is likely to impact their employability etc in their later life. If that's likely, you'd do well to save it to help them live as fulfilled and independent life as possible.

Are you sure the pension doesn’t stop when the child becomes 18? Often they only pay out for children while they are still of a dependents age

That’s a good point and something to bear in mind, thank you.
I’m talking about £500 in total out of about £6000 that is there so far.

My dependents pension pays for my kids to age 23. I guess it's meant to cover the university years where dcs are still financially dependent

It is 18 or 24 if still in full time education. There’s also a lump sum of around a house deposit once 18 so this isn’t the only money they’ll receive.

Put aside any money left over into a savings account needing your signature until your son is 30 years old.
You always have the flexability of withdrawing some for son for future special circumstances.

Or, use all of the funds for your son's educational and special activities and put aside some of your own money into a savings account for you to buy a house.

What is their special interest? Is it something that may help them in the future?

I definitely wouldn’t give it all to them. Given you’re planning to save the money for many years, I would invest it in a stocks and shares junior ISA so they can benefit from some investment returns too.

Do you think they will go to Uni? If so, I would put it in an account as an investment towards fees.
The pension will keep paying out until they are 23 if they remain in full time education (that’s the arrangement for my DCs with their sadly deceased father’s pension).

I would be very careful about calculating the full cost of having a child. The money is to help raise your child not just for 'treats' and saving for their future.

If his father was alive, child maintenance would be to cover rent/mortgage, heating, food etc. don't short change your own financial future.

I would make a calculation. How much should cover the day to day costs, how much into savings and perhaps a monthly amount of pocket money.

At his age I would say maybe 400 to cover costs, 50-100 a month pocket money depending on if he will be buying his own clothes etc. the rest into a high interest account/investment for long term savings.

I will calculate that today. I did do it for my eldest (different and very much alive dad) to see how much the child maintenance from him covered. Not even half of the costs per month. The maintenance amount was higher from my youngest’s dad.

We live a fairly basic life with no holidays abroad, no car, no gym membership, don’t drink, rarely ate out although we do that more now but only for the early bird special that costs about £15-20 in total. I buy 90% of our clothes from Vinted. They don’t get pocket money. You get the idea. I’m not frugal but we are used to a lifestyle that isn’t what others would deem comfortable and certainly not luxurious. I have booked a full week away to a UK destination in the summer holidays. Before we have only had a night or two away in a Travelodge kind of holiday.

I had thought about pocket money now that it’s affordable. I’ll look at that today.

I would do a few holidays like the one you have just booked and put money away in a way if you are going to that isn’t accessible because who knows how sensible with money your DS will be.

You are frugal without knowing it but there is nothing wrong with that. We also go for early birds quite often or lunch as better value. I mean it’s a limited menu often but if there is something you both like what does it matter.

I would use an amount that equals the CM you used to get for everyday living costs for your child; groceries, heating, clothing etc. As you shouldn’t be disadvantaged by the death of the father if money was left to support your Ds ongoing.

Save the rest for your Ds, making occasional special expenditure which is to his advantage and that you couldn’t afford out of your own funds. E.g the iPad, school trips, etc.

I agree. I don’t know all the legalities of it, but it sounds like you are entitled to take a portion of the £1000 per month as effectively maintenance, and then the rest I would keep saved for the child. Yes I would buy him some items or pay towards costs for him like his share of a reasonable holiday, but I would be sensible. That money could really help him in the future and so you need to balance his needs/wants now and his future, but also consider your own financial situation in raising him. No point you having nothing and him having a huge pot of money to blow at 18 because you kept all the money for him

I finally got round to working it out and our household bills come to a total of £479.54 each. Then there’s tennis and swimming for the youngest at £40 a month.
That’s without food though so probably add another £130 each for that.

I'd put £2,800 into a junior SIPP. The government will add tax relief to make it £3,600. If you paid into a global tracker fund for ten years, that could be worth the equivalent of £900k by the time they're 60.

The rest I'd put into a stocks and shares ISA in your name, so that they can't access it when they're 16. After ten years of contributions it could be worth £140k. If you held onto it for another decade until they were ready to buy a house, it should have doubled to £280k.

These figures are based upon 7% growth after inflation, which is the long term performance of the S&P500.

@ThisOldThangthank you. I’ll look into this. I’ve no idea about these things but I’m in the process of opening a discretionary trust fund for a lump sum that’s a death benefit.
The maintenance I did receive was around 45% of the total costs of dc’s share of rent, bills, food and activities. So if I use that amount for those items, save the rest and give some as pocket money/spending money. His special interest is something that significantly increases in value over time so it’s not a frivolous purchase but I’m still not sure because it’s still a lot of money for something that’s not for birthday or Christmas. It’s complicated by two older dc that have a different dad and they would want to know why the youngest is having money spent when they aren’t. I’m finding this difficult to balance and to know how to handle things in the best way with every aspect of the money.

I'm not a financial advisor, but I use these passive ETFs.

LGGG - Legal & General Global Accumulation Fund
Ongoing charge = 0.1%
https://fundcentres.landg.com/srp/lit/76OdV8/Fact-Sheet_LG-Global-Equity-UCITS-ETF-Global-Equity-ETF-USD-Acc_28-02-2025.pdf

Legal & General also have an S&P500 accumulation tracker (LGUG), which I think is the best available (0.05% ongoing charges), but it isn't very popular ('has low liquidity') so it's maybe not the best for your requirements.

VUAG is the Vanguard equivalent with an ongoing charge of 0.07%.

I, personally, would probably just put it all into LGGG as a monthly contribution to a Junior SIPP and Stocks & Shares ISA. The purchase price will even out over time.

Interactive Investor don't have any dealing charges for regular investments, but they do have a monthly platform fee that rises to £12 a month (£144 a year) once you've got £50k invested.

iweb have no platform fees, but charge £5 per trade, so would be £60 per year if you had a regular monthly purchase. If you stopped trading, you'd then pay nothing. I use them for my ISA.

Fidelity don't have a platform charge for Junior SIPP accounts and it is £1.50 per trade, so potentially £18 a year in fees for monthly investments into a single fund, such as LGGG.

OP, do be sure you know what you're getting into with a discretionary trust. They're expensive and complicated things and you will want to make sure you have a good accountant able to do all the annual compliance work on it for you.
Don't get me wrong; trusts have lots of advantages, but my heart always sinks when I'm approached to look after a trust where the trustees clearly have no idea what's involved - it's so easy to go wrong with the tax pools, the implications of taking money out etc etc.

I have no idea at all! Nor do I have an
accountant. One of the policies that is to be inherited stipulates that it goes into a trust but gives no advice on this. I have no clue and am daunted on this.

My rule is never to get any financial product that I don't understand. How can you look after it if you don't understand it?

You can open a normal savings account in trust for a child. I did it for my DD. You would be acting as the trustee, managing the account on your DC's behalf, who would be the beneficiary.

Here is an example that explains things, but there are many banks and building societies that offer this kind of account

https://www.ybs.co.uk/savings/childrens-savings-accounts

Cash savings probably aren't a wise place to store money for 20 years.

They'll almost certainly fail to keep up with inflation vs stocks & shares that, based upon the long term trend, would quadruple in that time period.