Grandparents funding the next generation

grandparents funding next generation

A recent survey conducted in London discovered 48% of grandparents were increasing their level of financial support to grandchildren during the pandemic.

Whilst supporting the children and structuring estate planning so that it benefits them is the norm, it would seem grandparents are not leaving out the younger generation.

What’s driving the increase in grandparents assisting grandchildren financially?

A growing life expectancy might be playing its part – more time to spend with grandchildren to watch them grow and begin to build a life for themselves will inevitability throw up opportunities to assist financially and grandchildren become young adults.

There might even be a tax incentive in doing so with assets passed directly to grandchildren not then being subjected to inheritance tax when the children die.

A trust might be considered a good option for many where their giving can be potentially more deliberately planned out, perhaps where safeguards against the financial inexperience of youth will pay future dividends.

What are Trusts?

Think of a Trust as a type of virtual safety deposit box, there for you to put assets into for safekeeping, that only you and your nominated Trustees can access.

When your assets are distributed from your Trust to your beneficiaries, this is done on the basis of a loan, so they are receiving a loan from the Trust, rather than a gift.

It is that very subtle difference that has the immensely powerful benefit of removing the value of that asset from your beneficiaries Estate. A loan is an outstanding debt against your estate when you die and must be settled before any Inheritance Tax is paid.

When do I need a Trust?

  • You will need to set up a Trust if you want to:
  • Protect your estate against potential future assessment for Care Fees
  • Leave assets to a vulnerable or disabled person
  • Ensure children from a previous relationship inherit even if you have a new spouse/partner
  • Mitigate generational Inheritance Tax liabilities
  • Protect a Life Insurance Policy settlement from Inheritance Tax assessment
  • Protect your beneficiary’s inheritance from Divorce, Relationship Breakdowns and Bankruptcy

What is the best type of Trust to use for grandchildren?

There are many different types of Trusts in the market as you can see from our Wills & Trusts Service page.

Many people will have previously opened a Child Trust Fund. Giving a child a financial start in life as they enter adulthood at 18 is something most parents, grandparents or guardians are keen to do.

In 2002, the Government of the time also decided this was an excellent idea and set the Child Trust Fund as a long-term tax-free savings account for children.

With the first beneficiaries of the Child Trust Fund scheme turning 18 in 2020, the Government took the decision to close the scheme in 2011, directing people instead to apply for the replacement scheme, a Junior ISA. The last Child Trust Fund accounts will mature in 2029.

What is a Junior ISA?

A Junior Individual Savings Account (ISA) is a way to either save or investment money on behalf of a child under 18, which allows them to earn growth as interest on the savings, capital growth or dividend payments without incurring a tax liability.

There are 2 types of Junior ISA: A Junior Cash ISA or a Junior Stocks & Shares ISA, and your child can have one or both types. While the money held in the ISA belongs to the child, both parents or guardians with parental responsibility can open and manage the account.

The child must be 18 before they can access the money, however they can take control of the ISA account from 16. They can make decisions from 16 about the fund and choose to move the funds into a Junior Stocks and Shares ISA or to an alternative fund provider.

You are not allowed to have a Child Trust Fund and a Junior ISA open concurrently; however, you can choose to transfer the funds held in a Child Trust Fund to set up a Junior ISA.

For more information on Junior ISAs, read our previous blog article: How to set up a Child Trust Fund.

In summary

Child Trust Funds and their successor, Junior ISAs have proved to be an excellent vehicle to encourage people to help their children and or loved ones to get on the savings ladder from the earliest stages of their life. Building a nest egg, some growing to tens of thousands of pounds, has given a whole new generation a wonderful start in life, hopefully a saving philosophy of their own, and control over their accounts from a relatively young age.

The Junior ISA scheme has built on the foundations laid by its predecessor, providing a wonderful opportunity for parents to put away a regular sum, lump sums and even money gifted from their child’s birthdays and Christmases, to ensure that any growth in the capital invested will be free of tax!

However you choose to structure your giving and your Estate Planning now and, in the future, there’s no harm in being generous, just keep enough back for a post-pandemic treat or two.

We would always recommend that you seek professional financial advice before embarking on any financial planning journey. At Redwood, we have over two decades of experience in helping our Clients to grow, protect and enjoy their wealth, and we can assist with any financial planning needs.

Jasmine Lambert Chartered Financial Planner
Jasmine Lambert

Jasmine is the Managing Director and a Chartered Senior Financial Planner at Redwood Financial. She helps clients manage and grow their wealth and protect their estate. Jasmine also provides expert advice in our FREE Redwood Webinars, where you can learn more about Wills, Trusts and Estate Planning.

Redwood Financial is one of the south’s leading Investments, Pensions, Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning, Lasting Powers of Attorney, Probate, Pensions, Savings & Investments, we can advise on any situation.
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