Listener Questions Episode 22: Financial Planning for Children
This week, Pete and Roger answer your questions about investing and planning for children, including trusts, life insurance and how to keep tax low. Shownotes: https://meaningfulmoney.tv/QA22 01:35 Question 1 Hi, A friend recommended your podcast in mid-Dec and have already listened to the Financial Advice Process and Combining Pensions episodes (which were both 100% relevant) and working my way through the Q&A episodes. I have a question about share trading accounts for my children (14, 13 and 11). They are in a fortunate position where they all have JISA's (held at Hargreaves Lansdown) which I contribute to (max amount) and manage, without their knowledge. My wife and I also hold ISA's at HL as well, which we max out. I was taught to be a saver as a child, not an investor, and this is something I have learnt more about as I get older. Your recent Q&A podcasts mentioned a couple of times about looking forward and not back - there is nothing I can do about my historic saving, and wish this was invested rather than saved!! However, my children are a lot more savvy about investing, than I ever was at their age. The two oldest children play a game called Business Empire and are multi trillionaires, I'd like to teach them the benefits of investing in the real world, but that it might not be quite as easy as Business Empire! We have discussed setting up a separate trading accounts for the children, putting some money in (poss £3k / £5k) and the children then managing the investment decisions. I want to keep the accounts separate from their JISA, so they don't get visibility of their JISA. Preferably I own the account and login, and the children can then ask me the value or ask me to execute trades on their behalf, which they request. They will make all the investment decisions. I recognise that they could turn £3k / £5k into zero quite quickly! Let's hope that Business Empire teaches them something. The only way I have found to be able to set up trading accounts for the children is that I set up a Bear Trust for the children, which seems overly complicated for what I'm trying to achieve. Or I create an account at AJ Bell for one of the children in my name and find 2 other companies to set up trading accounts for the other children in my name. Or I create a SIPP for the children. So the question is, where / how can I set up a trading account for children, so they can get experience of investing and making their own investment decisions. Love the podcast, keep up the good work Thanks, Stuart 10:00 Question 2 Hello Pete and Roger, Really enjoying the podcast. The Q&A shows have been fantastic for hearing about other people’s financial conundrums and thinking about how to apply those lessons in my own situation. I have some questions about children’s savings that I hope will help others too. For context, my wife and I have a 12 year old daughter and 8 year old son. My son has a severe learning disability meaning he is unlikely to ever be able to manage his finances independently. I get a good salary from full time employment and pay additional rate tax, while my wife stopped working several years ago to care full time for our son. Question 1: Can you please interpret the rule: "if, in the tax year, the child gets more than £100 in interest from money given by a parent. The parent will have to pay tax on all the interest if it’s above their own Personal Savings Allowance? Both children get £60 a month paid into children’s cash savings accounts since they were babies - half from us and half from grandparents. Last year, my daughter got £300 of interest. My hope/assumption is that the rule applies per parent. Otherwise, given my personal savings allowance is £0 I would potentially owe £135 of tax on my daughter’s earnings having only contributed a quarter of the funds over 12 years. We’ve now moved the bulk of her savings into a stocks and shares JISA to avoid any tax hassle, but this wouldn’t be suitable for my son who will be unable to manage the account when he turns 18. Does it make a difference if the payments come from my wife’s solo bank account vs our joint account? Question 2: Related to the above, where do you start with financial planning for a child with learning disabilities? What are the big things we should consider? Will savings in my son’s name affect his entitlement to the benefits and care he will need as an adult? Any advice on finding and vetting a good financial advisor with expertise in this area, as I appreciate specific personal circumstances will have a big effect here? Thanks, David, in Leeds 19:52 Question 3 Hi Pete and Roger Thanks for all the content over the years, so glad I found your podcast in my late twenties so hopefully I can look back in years to come and thank you for helping set me on the right track financially. My question is a little general in the sense that I don’t know what I don’t know, but I’m wondering what things I may need to do differently now that my wife and I have our first child on the way (we’re both 30 y/o). We currently save/invest each month in a mix of cash savings and a stocks and shares ISA, have a mortgage of which the payment is about to increase now our 5 year fix from 2020 is ending, and have decreasing life insurance (with critical illness cover). I mention these things specifically because they’re the things I’m aware of that we may need to tweak when the baby arrives. We’d like to start putting money aside for them to use when they’re 18 for travelling or a house or whatever they want really, I’ve heard of junior ISA’s, is there an advantage to using these over just keeping a separate pot in our own names? Are there any other child specific options for this purpose? Do we also need to re-assess the life insurance when we have a child. It’s currently set up to cover the mortgage should something happen to one of us, but with a child to think about I’d feel more comfortable knowing my wife wouldn’t have the pressure of needing to work in the short-term alongside bringing up a child alone should anything happen to me (and vice-versa). Are there any other child related things we ought to be thinking about financially speaking? Looking forward to hearing your thoughts and perhaps changes you made when you had children! Liam 27:15 Question 4 Hi both, thanks for the great content and your dulcet tones. Please can I ask two quick question? Q1: I’ve paid £2880 into my child’s (2y.o) Junior SIPP, grossed up to £3600 through tax relief. I am a higher rate tax payer, can I claim the extra 20% tax relief, even though it’s not my private pension? If yes, is this just via my self assessment? Q2: if this £2880 was transferred, via bank transfer, from my parent (I.e. grandparent of my child) to me, then to my child, can it count as gift from the grandparent straight to my child? Or does it count as 2 gifts, a gift from my parent to me, then another gift from me to my child, for IHT purposes. Loving your work, Best wishes, Phil 30:10 Question 5 Hello gents. Firstly, a huge thank you for everything you (all!) do there at Meaningful Money. I’m a LONG time listener, and the help and support I’ve gleaned from this excellent podcast over the years has been invaluable! Keep up the great work! My question: As the parent of a disabled adult (18 years old), do you have any suggestions/recommendations for the things that we should be thinking about and putting in to place when legacy planning. My better half and I are married, with mirror Wills in place to leave to each other, or to both children equally in the event we both die (2nd child is currently 16). However, we are aware that should our disabled 18 year old inherit a pretty reasonable sized share of our estate, this would impact on the support and benefits that they have recently been awarded. This must be a fairly common situation, but we haven’t been able to find much clear guidance, so we’re hoping you can suggest what the best way(s) to deal with this situation might be so that we know where to look? We did have a brief look in to trusts, but they seem a bit of a minefield, and we don’t want to burden anyone else with what appears can become a sizable task to administer. Just to also mention, we are hoping that we will be able to get LPA’s in place for our disabled child (otherwise apply for deputyship, however LPA is the preference if possible as seems the much easier option…), however we’re hoping to be able to manage until our youngest reaches 18, so that they can also be added as an Attorney(/Deputy), for longevity and diversification, rather than having to do it all again in a couple of years. Not sure how relevant that is, but added just in case… Many thanks again. Peter. 36:16 Question 6 Hello Pete and Roger, My question for you is how best to invest a lump sum that you intend to drawn down over a period of time? I will soon be in the fortunate position to be gifted a significant lump sum which I intend to use to pay school and university fees for the next 15 years that my children will be in full time education. I could just keep it in cash and a draw it down over time but I would like to invest it to generate a higher return and hopefully still have some left over at the end. How should I go about investing this money? I have a high risk tolerance but 100% equity doesn’t seem sensible if I am drawing down regular amounts. Also I am an additional rate taxpayer so should I be considering asking for the money to be gifted directly to my children in a bare trust rather than to me? Keep up the fantastic work. Best regards, George
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