28th March 2013 at 6:16pm
What does whisky have to do with regular savings?
At first glance, whisky and regular savings might not go hand in hand. But in my family, a giant whisky bottle was the home for our loose change. It would take months and months to fill it up – and when the time came to pour out all the coins, it took forever to bag them up into the right combinations.
And that’s what’s interesting about regular savings. They build up slowly, gradually over time, and you don’t always notice.
So what is the equivalent of the whisky bottle today – particularly for the next generation? Prompted by the 2013 Budget, parents are likely to be able to merge a Child Trust Fund into a Junior ISA (JISA) at some point soon. So the JISA is looking likely to become the ongoing scheme.
For tax year 2013/14, family and friends can contribute up to £3,720 for a child’s JISA. Imagine you do save the maximum JISA contribution for your new-born, which is currently £310 per month, from birth until the age of 18. This gives your child a pot of almost £67,000, before taking into account any interest, growth or increase to the JISA limit.
With a JISA, the child will get access to their funds at the age of 18. But would you feel comfortable handing over £67,000 to an 18-year-old? I know I wouldn’t.
These concerns are the reason a trust is often used instead. A trust is simply a way of holding funds which are for the benefit of someone else. The trustees (who are often the parents or grandparents) can control how someone gets access to the trust. This could be delayed to an older age. There are some inheritance tax points to understand if you’re using a trust – just a point to flag.
Funds could then be drip-fed out, rather than taken as a large lump sum. Trusts can also be useful for holding assets for those who have special needs.
You can’t hold a JISA inside a trust, so you need to make a judgement call. What’s more important for you – the simplicity of a JISA, or control over access so your 18 year old doesn’t waste a windfall?