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.