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Can I save for children without access at 18?

Kids | Investing for Children Helpful? 6

Asked by Marie96, submitted 24 September 2011.

Open Quote I'm a little confused over the best way to invest for our children. We are looking for a long term investment so guess stocks and shares the best option and to pay a monthly sum to try and balance the ups and downs of the market. We aren't interested in the new Junior ISAs as we know how we would have wasted money if we had access to it at 18!

At the moment I'm a bit blinded by the variety of options out there and not sure where to start!

Do you have any suggestions?

End Quote

Answered by Justin on 01 May 2012

It sounds as though the key point is preventing your kids from blowing the money when they turn 18. Unfortunately, the only practical ways to stop them getting access to the money at 18 are to either hold it via a trust or hold it in your name (then gift it to them when you decide).

Using a trust will allow you to name the age at which the children will have access to the money. There are various types of trust available, but a discretionary trust is the most common for this purpose. However, using one will incur expense (you'll need a solicitor to set it up, which could cost a few hundred pounds) and any interest/income within the trust will be taxed. Your children may be able to reclaim the tax when income is distributed, but it means time consuming form filling. Unless the sums involved are large, a discretionary trust would probably be overkill and certainly not very cost effective.

Holding investments in your name is much simpler and cheaper, the main downside being that you'll be liable for any tax until the money is gifted to your children - although you could avoid this by holding savings/investments for your children via your own ISA allowance, if available. Another issue (from your children's point of view) is that you might change your mind in future and decide not to give the money to them!

You could make pension contributions on behalf of your children, which has worthwhile tax perks and can be cost effective using a stakeholder pension. However, they won't then be able to get their hands on the money until age 55 (and this might increase in future), which I suspect is longer than you have in mind.

Personally I'd use a Junior ISA or hold shares/funds in a simple 'bare trust' (just needs a simple form and savings/investments taxed as child's to make use of their allowances). Both give the child access to the money at age 18, but with a bit of money education hopefully they won't squander it all - especially if the money is invested as withdrawals won't be as easy as popping to an ATM.

Whichever route you use, the big decision is then what to invest in. I could write pages on this, but to keep things simple perhaps consider combining a low cost UK tracker fund with modest exposure to an emerging markets fund (assuming you have 10+ years until the children reach 18). It might be a roller coaster ride over the next few years but, as you point out, a monthly saving could help smooth this.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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