An interesting article in last Saturday’s Guardian newspaper caught my eye. It was about the conflicting advice given to the parent of Alexis who recently inherited £100,000 from her grandparent’s estate.
My first thought was, lucky Alexis, but I was ‘surprised’ by the differing views given to Ruth (Alexis’ mother) from the three IFAs asked for advice.
Alexis is only nine and therefore cannot access the money until she is at least 18, therefore it is held in trust and trustees invest to maximise her inheritance. The terms of the trust are set in the grandparents’ Will, but the article did not divulge this crucial information. However, Ruth wanted the inheritance to pay for University fees and buy a car, but by her own admission, she had little idea how to go about investing the money.
Advisor 1 suggested dividing the inheritance into a balanced portfolio to cover university costs, pay a ‘sizeable’ deposit on a house when she is 25 and make large payments into a pension. They predicted investment growth of 7-8% per year with a balanced portfolio.
Advisor 2 suggested paying into a pension fund is ‘daft’, but paying for university fees and a house deposit is better. They also suggested keeping the inheritance as a single investment portfolio but spread over a diverse range of risk and ethical funds, particularly as Alexis might want to shape some investments herself.
Advisor 3 suggested planning on returns as low as 5% but agreed with investing to pay university fees and obtaining a sizable deposit for a house but with a more aggressive investment portfolio to maximise higher returns.
I suppose you ‘pay your money and take your choice’, but there are some other issues regarding the trust. It is important to ensure your trustees know their responsibilities and make a letter of wishes to guide the trustees on how to use the trust for the benefit of the child. All trusts for minors have a duty to provide for the maintenance, benefit and education of the child and the laws provided by the Trustees Act 2000 state the statutory powers of the trustees. It is possible for your Will to add to the trustees powers and limit their liability. A good Willwriter will advise you on this.