How can I set up a trust?
My sister died a few years ago and left some cash for her son. As my sister was not married she asked me to invest it for him. I currently have it invested in a high street building society, however I would like to put the money in trust until he reaches 21.
How do I set up a trust? Can the money remain where it is in the building society and still be in a trust? The particular society the money is in offers a cash card once the child reaches 11 years; he has just reached 11 but I don't feel that giving him access to the money is a good idea.
Ask the Professionals: Philip Pearson, a partner at P&P Invest in Southampton and investment portfolio specialist, says:
A trust is an arrangement whereby you look after an asset for the benefit of someone else. Although no formal trust has been established, you are already undertaking this responsibility in operating the building society account for a minor.
Under such a provision the account will pass from your stewardship to your nephew upon him reaching age 18. The same is the case for investments for a minor unless they are arranged within a trust that specifies a later age.
The points that need to be considered in how best to maximise the capital over the next 10 years are: where to invest and how to control the arrangement. Cash over the long term has shown to provide a very poor return against inflation.
With interest rates at a historic low there is little point in using a deposit account unless you have the need for capital in the short term. I therefore advise you to consider alternative forms of investment, such as unit trusts, OEICs or investment trusts, or alternative assets such as corporate bonds, commercial property and shares.
If you are happy that the investments are inherited when he turns 18, a formal trust would not be required, with you being responsible for the administration of the funds over the next seven years.
If you are adamant that your nephew should not inherit until age 21 then you will need to arrange a trust through a solicitor.
Trust planning can unfortunately be a complex matter so seek further advice before investing.
Open-ended investment companies are hybrid investment funds that have some of the features of an investment trust and some of a unit trust. Like an investment trust, an Oeic issues shares but, unlike an investment trust which has a fixed number of shares in issue, like a unit trust, the fund manager of an Oeic can create and redeem (buy back and cancel) shares subject to demand, so new shares are created for investors who want to buy and the Oeic buys back shares from investors who want to sell. Also, Oeic pricing is easier to understand than unit trusts as Oeics only have one price to buy or sell (unit trusts have one price to buy the unit and another lower price when selling it back to the fund).
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.