In the final article on how grandparents can help with savings and investments for their grandchildren, we look at Bare Trusts.
Banish thoughts of nudity or bears!
A Bare Trust is actually a simple legal arrangement, so you can give money away but still keep some control.
By setting up a Bare Trust you can make sure your grandchildren don’t get hold of the money before they are old enough to manage it properly.
Until they turn 18 , the trustees manage the money on the child’s behalf. Bare Trusts could be used for school fees, as the trustees can be instructed to use the money for educational purposes.
The option is also tax efficient. Assets inside a Bare Trust are taxed as if they belong to the child, which normally means you do not have to pay tax or little tax.
You can pay in £3,000 a year without any inheritance tax consideration.
(IHT)
Higher gift levels are permissible but there may be IHT considerations
There are some pros and cons however that are worth noting:
The Pros
• Cheaper and easier to establish than other types of trust.
• A trust deed is not always required.
• A bare trust can be used to hold assets for a minor who
would be otherwise unable to benefit from owning
securities.
• Withdrawals are permitted (unlike a JISA or SIPP), before
the beneficiary reaches the age of 18 (16 in Scotland) if
they are for the benefit of the beneficiary where written
instruction has been received from the trustee(s).
The Cons
• Bare trusts are not particularly flexible vehicles when
compared with other types of trust.
• The beneficiary can take control of the assets at age 18
which the settlor may not desire.
• The trustee has little discretion compared to other types of
trust.
And that concludes our series on the options for grandparents who want to save and invest for their grandchildren.
There are links to the articles already published below.
1. Children’s Savings Accounts
2. Junior ISAs
5. Bare Trusts
And if you want to discuss any on the above, you can call us on 0131 226 6700.
* The value of an investment may go down as well as up, and you may get back less than you originally invested.
