View more on these topics

Case study: Investing a legacy for a minor

Picture of Helen O'Hagan from PrudentialInvesting a legacy on behalf of a child can be problematic because minors are too young to legally contract. Helen O’Hagan discusses the options.

Neil’s daughter, Erin, who is four years old, has been left a legacy of £30,000 from granny Margaret who recently passed away. Erin has her own bank account where Neil puts away birthday money and Christmas money for her and at the moment she has more than £4,000.

Neil is unsure of how to invest all of these funds for Erin and is considering asking the executor to pay the funds directly into Erin’s savings account.

The solution

Neil contacts his financial adviser who informs him that the legacy monies should not be paid directly into Erin’s account. He states that as Erin is a minor child she is unable to legally contract. This means the monies would be frozen in her account and unable to be invested.

Tony Wickenden: A lesson in investing for children

Neil wants to invest the funds on her behalf to maximise growth and provide her with a nest egg for the future.

Paper chain family held up to sunsetHe already has an investment bond of his own and is keen to invest in a similar asset for Erin. His adviser tells him that most insurance companies will not accept funds from an account held by a minor child, nor can a minor child be the owner of a life assurance bond.

Neil asks his adviser if he can just take the monies out of her account, make the investment himself and write this into trust for her. However, his adviser says that he cannot do this as Erin is not old enough to make a gift to him, nor is Neil able to create a trust and settle monies that do not belong to him.

His adviser tells him that the first thing to do is to speak to the executor who is holding the funds pending distribution in accordance with the will.

Normally the funds are held by a solicitor in their ‘client account’. The executor can then analyse the will to see if there is already a trust created within its wording. If there is, the trustees of the will can make an application to the insurance company so that the investment can be made.

Tony Wickenden: Keeping control over children’s investments

If there is not a trust and the will is worded in such a way that it just leaves the £30,000 to Erin, the executor can appoint trustees to hold the legacy until Erin reaches the age of 18. The trustees can then invest the monies on her behalf. In this case, it makes sense for Neil to be appointed as one of the trustees.

Another option is for the executor to retain Erin’s legacy and invest it, on her behalf, until she reaches her 18th birthday. Neil is not comfortable with this route as he doesn’t know the executor very well and he wants to be in control of the funds himself. He is not keen for the executor to act as a trustee and be in charge of Erin’s money.

A final option is for the executor to arrange for the funds to be discharged to Neil as the parent/guardian of Erin to hold on her behalf until she reaches 18. Normally the executor will obtain valid receipt in these circumstances but will have to monitor the use of the money until Erin receives the funds.

After discussion with his adviser Neil decides to ask the executor to appoint him as a trustee in order that he can retain control of Erin’s money and invest it for her until she reaches 18. Normally the insurance company will require a copy of the will and probate, the appointment of trustee paperwork and the relevant application form to proceed.

Neil cannot add the monies already sitting in Erin’s account as these funds cannot be mixed with the trust monies from the will.

Helen O’Hagan is technical manager at Prudential

Recommended

Footballers face £250m bill over tax avoidance scheme

HM Revenue and Customs is investigating the tax affairs of 129 footballers as part of a crackdown on tax avoidance, The Mirror reports. The papers says that in total the players put £250m into the alleged tax avoidance scheme after consulting financial advisers Kingsbridge Financial, which went into liquidation in 2015. The scheme Kingsbridge recommended […]

1

Will AI change the face of financial advice?

As debates around the relative merits of automated and face-to-face advice continue to rage, onlookers are assessing whether more advanced artificial intelligence systems that learn and adapt by themselves could radically shake up the planning profession. In October 2017, the government released an independent review on the increasing benefits AI could have for the UK economy. […]

1

FCA director: New rules will deliver a fair, open asset management industry

Last week, the FCA took the next step in improving competition in the asset management industry. We have made new rules and are now consulting on further proposals. Our asset management market study has been one of the most comprehensive competition investigations the FCA has yet done. These reforms contribute to an already high volume […]

1

Royal London eyes shareholder rebellion over Metro Bank chair payments

Royal London Asset Management has warned Metro Bank it will vote against the reappointment of its chairman over payments of more than £21m made to his wife’s company. In the latest bout of activist shareholding from RLAM, it has expressed concerns over millions in payments for architectural, branding and marketing services to InterArch, a firm […]

Trouble ahead - thumbnail

Pensions: trouble ahead?

The pace of change in the pension’s space has been little short of astonishing, and has left thousands of employers struggling to keep their pension policy compliant, and also on the right side of current best practice and governance. Many employers, and indeed many in the pensions industry itself, would like to see a period of no change during the next term of government. This would give all sides a chance to catch up and draw breath. 

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment