LEAVING A LEGACY
Ever higher house prices, the inexorable rise in education fees and a generalised increase in the costs of living, have all brought into sharper focus the need to set aside the next generation.

KEY TAKEAWAYS:
– Making provision for loved ones can give them a financial head start in life
– Bare Trusts, Junior ISAs and paying for school fees can all be tax efficient means    of passing on wealth
– Setting aside savings, or more complicated Trust arrangements should also be considered.

RELEVANT TO: (UK) ANY PARENT, GUARDIAN OR GRANDPARENT, REGARDLESS OF NATIONALITY
From Boomers, to Gen X and even possibly millennials, parents of all ages are increasingly concerned with making provision for their children and loved ones, as inflation pushes up the costs of everyday living, not just big ticket purchases like education and first homes.

Being ‘Wealth Resilient’ can mean removing the worry associated with the welfare of the next generation, and setting aside financial resources to do can secure the financial future of those who matter.

GIVING A HEAD START
By investing strategically, those motivated to do so can provide for the welfare of their children and grandchildren, providing them a head start in life, and a leg up when needed.

Tax efficient structures such as junior ISA’s, or bare trusts are all avenues by which the savings and growth can be optimised for taxation purposes.

BARE WITH ME
A bare trust is a means by which assets can be passed on, and only available to the beneficiary such as a child, on becoming a certain age. The Trustee holds them on their behalf – often a parent or grandparent – until such time, habitually 18 in this case.

In respect of Junior ISA’s, the annual allowance is currently restricted to £9,000, (for the 23/24 tax year), although anyone can contribute. The beneficiary of the JISA though is limited to the person it was originally established for. A Bare Trust though, suffers no such restrictions and any value can be ascribed to it.

JISA’s, like their older brethren, ISAs, benefit from tax free growth, that is to say there is no income or capital gains tax to consider. Bare Trusts are subject to tax though, to the degree that the benefit which accrues in any given year is above £100. Where that is the case, it is the parent when they are the Trustee, whose tax liability it shall become. If the Trustee is the grandparent, then it is the beneficiary (or children) who would bear the tax, potentially meaning a lower tax rate would be applicable.

From an Inheritance Tax Perspective, conbributions to either JISAs or bare trusts would be considered ‘potentially exempt transfers’, subject to the donor living a further seven years. That is to say, the contribution will no longer form part of the parents, or grandparents estate for IHT purposes, should they live a further seven years from the date of the gift.

THE BEST INVESTMENT IS EDUCATION
Whilst JISA’s do not offer access to the funds having been contributed into, bare trusts do, whilst the withdrawal is for the benefit of the beneficiary – for example, education fees. Children do ultimately gain access to the funds in a JISA at age 18, although they will be entitled to assume control of the account before that, at age 16. A common concern with both approaches is that at age 18, children do assume control of the funds, and at that point there is little influence or control legally that can be exerted over how they are used.

At age 18, Trustees of bare trusts are legally obligated to let the beneficiaries know of its existence, and from there it must be reported on the tax return on an individual child.

HOW CAN WE HELP?
By taking into consideration making provision for your loved ones early, both the structure and growth can be optimised, giving you the confidence that they will have a safety cushion to begin navigating life’s economic, and other, challenges. Our advice will always consider the interests of your most treasured assets – your offspring.