DC large gift

[Christmascakeforbreakfast]

My FIL has made a gift into trust for my DC. This is not the first so now they have over £300k each.

I’m worried about how this will make my kids behave and if it will seem such a big sum that they are not motivated to work hard (not that it is compared to a lifetime of work, but kids have no concept). I am to be made a Trustee and will be able to decide when they get it and indeed if they get told.

What do others think? Would you make your kids aware?

What a wonderful gesture from FIL and shows tremendous trust in you to manage this for them.

As it's a discretionary trust I would set your own parameters ahead of time on how the trust will be used - so for instance:

a small lump sum at 18 and/or 21 and /or 30.
paying for uni fees and living expenses;
a lump sum for a house deposit when ready to buy,
a lump sum for first car and driving lessons
a contribution each year into a LISA and /or SIPP.

One way to encourage dc to be sensible with finances is to match what they have saved in some proportion. So if they save £2000 towards a car, the Trust will add double (- or whatever proportion you decide is appropriate). This way they actually have an incentive to learn effective money management skills.
You could do similar with investments - so say after 5 years of them investing in an ISA after Uni, you could use the Trust to match their investment.
This would reward their prudent financial management with a greater responsibility to handle larger amounts.

I wouldn't tell them any amounts in the fund - just explain at each relevant stage what the next step is - so at 18 they find out there is an amount to cover Uni fees and expenses. After Uni they find out about the ISA match to encourage them to save. At 21 they find out about the small lump sum etc.

Whilst they are still young you could set up a Junior SIPP for them now in a simple global tracker so it's all ready for them for when they're able to invest in it themselves once working. When they're teenagers talk to them about long term investments for building wealth, if you can engage them in taking an interest.

You could filter some of the funds into their SIPPs to give the benefit of very long term growth far into the future (£2280 each tax year for those not working, and receive tax relief on top to £3600). It would only be a small part of the Trust money but would have great growth potential of compounding over the time frame.

Thank you, some great ideas. @flipflopflops

I did think a pension would be a good idea. I’d have to check if I trust can make the payment and get the tax relief, but in reality we could do that one way or another. You are right though and we should do it.

My kids have £120k each from a grandparent. I explicitly told them it’s for that there’s money from the grandparent for a house deposit and that they can have £100k when they are ready to buy. £20k is earmarked for spends but I am the only one with access to it even for my adult son who can nobody access it but prefers not to. This is for things like travelling, a master’s and anything they want to do that they don’t “need to do”.

Do you have it invested? Or is there no Trust? I can’t decide the best route as it’s a balance between tax and flexibility.

@Christmascakeforbreakfast Do dc pay tax? Our money was invested and not taxable. Other money was in property and CGT when realised. I’d get a financial adviser! It’s too much to guess about what to do. You can agree to invest for 10 years and all money it makes is reinvested.

Wow,what a lovely thing for your FIL to do.

In a discretionary trust it’s taxable. The individual tax position of beneficiaries isn’t applicable. Only a Bare Trust works that way, but that gives full access at 18 so was decided against.

I would tell them when they're planning uni/career steps. My best friend was the recipient of a trust fund and used it to support herself through her pupillage and first few years as a newly qualified barrister. If she'd not had that money she would have had to do something else as in our jurisdiction barristers pay very hefty training fees and don't earn during training and it takes a while to build up a solid list of instructing solicitors.

If your kids could be interested in the kind of career where the early years are a real struggle I think they should know this is an option.

I'd go for 25. Get through uni, training and a bit of travelling so more useful for housing or conditional release of some to reduce uni debts or to support gap year travel but I'd deffo put conditions on it to protect it a bit ... they won't ever get another sum like it.

@Christmascakeforbreakfast I am a huge fan of financial education from a young age. Along with giving children pocket money to learn how to manage money.

There are two resources the first is Money Saving Expert free textbook https://www.moneysavingexpert.com/family/financial-education/

I have also, thanks to MN, found out about Rebel Finance School, also a free online and YouTube resource. https://rebeldonegans.com/finance/rfs/

Regular conversations about pensions, saving, investments, debt, mortgages, APR etc. help DC to learn good principles from an early age.

Well if it’s discretionary isn’t it up to the trustees when and if the beneficiareis recieve it. Money with strings basically. Bit of a strange post. What do you want for your kids? Most people live without such strings on money and they manage to live happily. If they know they are wealthy then there work ethic may or may not be less. I’m sure FIL has his own ideas on how it should be used.

What are property prices like your way?

if that enough for a property or a sizeable deposit and they could afford a mortgage if needed then I’d tell them once they’ve got a career and can get in property ladder.

id frame it as you have £X for a deposit and £x for spends.

A strange post?

I can’t really discuss in real life with people so reflecting online is my option. I am a Trustee as is my DH, no one else. Other posters have been really helpful so I’m very pleased with my strange post as it’s given me new perspectives, ideas, and sources of information.

I sense you just want to have a little dig.

@Christmascakeforbreakfast I understand. My 3 DC will inherit high six figures from my parents directly when they die. This is alongside maxed out pensions and ISA’s already in their name. Alongside this the bulk of my parents estate (about 95%) will come to myself and my DS’s and there is all I have built up with DH alongside that. That would naturally be passed on through….

So it does seem hard but it’s about educating them about how to reach financial freedom. How to reach a stage where they have no debt (even in their house), creating passive income streams through investment for retirement (stocks and shares isa’s and pensions) then saving toward separate pots that grow that can be staggered and used as needed (for us that’s investment outside isa which does attract capital gains but also grow and provide dividends). My DF started teaching me about this early so I do all our family’s investments and am teaching my DC now.

I have already said very clearly to these rather lucky DC that if I see them pissing away what they get directly they will not get the rest of it as I will leave it to the donkeys. And I would. DP’s would have with me so I had to prove myself and that I could cope with it and forge my own life. The same rule applies.

Property prices are ridiculous, so they’d need a big mortgage to stay local.

i think that’s why my thoughts are all about the deposit, but posters have influenced my thoughts on other options that are also valid.

Perhaps more general discussion on savings and investments are needed in everyday life.

I’m not having a dig. You described yourself as poor growing up but your children are in a privileged position which the majority of people will never see such money, of course property seems a sensible investment when they are old enough to hold property, tax on discretionary trusts is eye watering. If you and your husband are trustees then any conflict between yourself and FIL with the trust decisions sounds like it won’t be an issue. I think if you and your DH are in a good financial hard working position now then unless you gift large amounts with no guidance most of the risk of them blowing it away without thought is mitigated. Further Education, deposits for a house, pensions etc are a sensible way to go but those decisions are very personal to your family and their circumstances at the time which is why I found a post strange.