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Setting aside money for your children

By Richard Eastwood, Pearson Hinchliffe Solicitors Head of Financial Services.

 

Many parents decide to set aside capital for their children’s future and this often comes at a time when the first spouse dies.

 

The difficulty lies in the timing of the gift to the child. This is because, as we all know, funds at 18 can be frittered away very quickly, to the extent that even the teenager will regret it in later life.

One of my proposals would be a Discretionary Trust, this allows the parent or guardian to distribute proportions of the capital at important times in the child’s life and in sensible proportions i.e. driving lessons, buying a sensible car, the cost of university education, holidays, a deposit on a house and even setting up a business! If the funds are managed properly, the capital may be used for all these things over a period of time.

One other solution is to also contribute to a pension plan on behalf of the child (maximum £300 per month/£3,600 per annum 08/09) this is an excellent way to provide for them.

• The contributions receive basic tax relief at source, meaning that, of the £300 per month that actually went in to the pension plan, the personal contribution from the parent would cost only £240 per month.
• The Pension Funds can have many years to grow, (e.g. should you save £250 per month from age 5 to age 15) therefore, the plan would not need the same amount of funding as someone starting to save at age 35 for example.
• Plus the gift is free from inheritance tax immediately, if paid out of the parent’s normal regular income.
• The child cannot access the funds until age 55, when you would expect them to be mature.

And what a fantastic financial weight to be lifted off your Childs shoulders, knowing that they can buy their house, start their own family, go on holidays, enjoy Christmas - all the normal costly things in life, but knowing their retirement was fully catered for …

For more details, contact Head of Financial Services Richard Eastwood (IFA) on 0161 785 3500 or email richard.eastwood@pearson-hinchliffe.co.uk.

Please note: all calculations are for illustrative purposes only. We advise you to consult your financial adviser for a personal financial assessment.

Pearson Hinchliffe Commercial Law | Hollinwood Business Centre, Albert Street, Hollinwood, Gtr Manchester, OL8 3QL
Telephone: +44 (0)161 785 3500, Fax: +44 (0)161 624 2589, Email: enquiries@pearson-hinchliffe.co.uk