11 June 2010

Savings for Children

One approach to putting money aside for children is to use the "Designated Account" method.

You could, of course, simply have in your own mind that a particular savings or investment account is destined for a child or grandchild. In some cases it will be possible to record that fact by having a "designation" on the account - just a second name for it, really. But the account will be taxed as yours - the investor - because it really is still yours!

On the other hand, if you make the designation "irrevocable", then you are creating a trust - a "bare" (or "absolute") trust to be strictly correct. The provider of the investment account needs to know about it, because the child is the beneficial owner, and when they reach 18 they will become entitled to it.

Because you - who provided the money for the account - do not have any access to it (you cannot surrender it) you have no tax to pay. (It is a gift for Inheritance Tax purposes, but in most cases it will be exempt.)

The mechanics will vary but an account provider should be able to help.

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