Short term savings in trust.

I don't know much about this but I thought trust accounts were fairly standard.

Be aware of the £35,000 per organisation (inc subsidiaries) compensation scheme limit -

This doesn't apply to NS&I as it's just about the safest investment there is as it's guaranteed by the government. Unfortunatly this is often reflected in the low rates. I think the solicitor is talking bollocks about requiring an IBAN - call the NS&I helpdesk.

Long term investment in cash based investments such as savings accounts is highly risky due to the effects of inflation. Short term it may well be the best investment as property prices look ridiculously high and equities look poor value for money. If you don't mind me asking, what demands are there on the money ?

Daytona

Be aware of the £35,000 per organisation (inc subsidiaries) compensation scheme limit -

This doesn't apply to NS&I as it's just about the safest investment there is as it's guaranteed by the government. Unfortunatly this is often reflected in the low rates. The NS&I accounts have a limit of 100k, so no good really.

Long term investment in cash based investments such as savings accounts is highly risky due to the effects of inflation. Short term it may well be the best investment as property prices look ridiculously high and equities look poor value for money. If you don't mind me asking, what demands are there on the money ?

What do you mean Demands???

"Phil" wrote

Eh? From NS&I website :-

Easy Access Savings Account : Max 2 million - or - Income Bonds : Max 1 million

Any of the main high street banks should offer this.

The easy access can not be set up in trust, a Investment account that can, has a limit of 100k

What is the money to be used for and when ? I was considering the investment side of things.

Daytona

Crossposted to uk.legal

The thing to ask for is a trustee account, and you may well need to talk to the Private Banking part of the bank ie not the standard branch. Do the 'big four' HSBC, Lloyds TSB, Barclays & HBOS have the same limit ?

Daytona

What is the money to be used for and when ? I was considering the investment side of things.

For the kids when they grow up??? Was thinking of a buy to let property, but I have just been speaking to a IFA and they are coming round to see me tomorrow. I think a trust will be setup and the cash invested that way??

OK, because it was such a large sum I was wonding if was some sort of disability settlement, where large sums are more normal there are immediate income requirements.

Whenever you're looking to save over more than a few years, inflation becomes the principle threat. Only assets such as property and equities appreciate with inflation, fixed interest investments such as cash accounts and gilts do not.

Looking at retail price inflation (RPI), the buying power of a sum of money in a bank account in November 1996 has been reduced by 23.5% and a sum in November 1986 has been reduced by 50.6%.

Interest rates, and therefore income, have fluctuated by +/- 36% since Nov 1996 and by +/-62% since Nov 1986.

Combining these gives us real, spending power of -

Capital Income

1986 100,000 10,875 1996 64,575 3,834 2006 49,400 2,470

Sources -

http://213.225.136.206/mfsd/iadb/Repo.asp?Travel=NIxIRx As for property, personally, and as a landlord, I think it's one of the worse points in the house price cycle to be thinking of purchasing. See the Long Term Real House Price Trend graph on page 3 of the Nationwide Building Societies monthly review - The 30 year trend is 2.8% real. We're ~30% above it. As for equity linked investment, I think that it's a bad time in the business cycle to be purchasing. We're at the peak of a boom, company earning have been artificially inflated by interest rates (and hence loans) that have been too low for too long. Due to the rapid increase in money market interest rates that has occured both in the UK and around the world since the summer (and which were the cause of the 'credit crunch') I'd expect company profits to fall as the full effects of less available loans and higher interest payments feed through over the next 12-18 months. Having made annualised returns of

17.3% above the market over the last 6 years I think that there is a greater probability that I'll make significantly less than what I can get from a savings account, so I've sold all my shares and put the money in a savings account. I'll review things in 1 year.

If I was investing, these are the strategies/investments would be using -

I'd use -

and invest in one of the following, in order of personal preference - High yield, buy and hold strategy High yield, change each year iShares FTSE UK Dividend Plus Jupiter Income Invesco Perpetual Income Invesco Perpetual High Income

If you wish to investigate the first 2 further see these examples of long term returns from investors on The Motley Fool (TMF) forums -

TMF posters 11%pa dividend growth over 40 years -

TMF posters 9.5%pa return over 20 years -

TMF posters 11%pa return over 35 years -

The income (yield or interest) is a good comparison of the value for money offered by different investments -

Cash 5.75% (BoE base rate) Equities 2.98% (FTSE 100 yield) Property 4.6% (Association of Residential Letting Agents (ARLA) Buy To Let Index - Cash purchase - no mortgage)

Now take into account the risk of each and any extra fees which reduce these returns, and you can maybe see why I feel the way I do.

I'd do what you were thinking of and place everything in a cash account for 1 year and then review.

Talking to an IFA (make sure they're independent see

) is a good first step, but be aware that they do not generally advise on cash accounts, equities or property because they make no commission on them. Instead they recommend bonds, Unit trust funds and OEICS which pay them, sometimes large, commission. Due to the large amount involved I would pay fees and get all commissions refunded (get it in writing) as this is a fairer way of paying. Let us know what they recommend and we can double check and make sure that the charges are fair.

These links may help -

TMF Childrens savings accounts -

TMF Getting the most out of your IFA - ng-most-ifa.aspx

TMF Investing for children -

BBC Investing for children - I hope this is not too much information :-) !

Post again when you've had a chance to think things through.

hth

Daytona

OK, because it was such a large sum I was wonding if was some sort of disability settlement, where large sums are more normal there are immediate income requirements.

Whenever you're looking to save over more than a few years, inflation becomes the principle threat. Only assets such as property and equities appreciate with inflation, fixed interest investments such as cash accounts and gilts do not.

Looking at retail price inflation (RPI), the buying power of a sum of money in a bank account in November 1996 has been reduced by 23.5% and a sum in November 1986 has been reduced by 50.6%.

Interest rates, and therefore income, have fluctuated by +/- 36% since Nov 1996 and by +/-62% since Nov 1986.

Combining these gives us real, spending power of -

Capital Income

1986 100,000 10,875 1996 64,575 3,834 2006 49,400 2,470

Sources -

http://213.225.136.206/mfsd/iadb/Repo.asp?Travel=NIxIRx As for property, personally, and as a landlord, I think it's one of the worse points in the house price cycle to be thinking of purchasing. See the Long Term Real House Price Trend graph on page 3 of the Nationwide Building Societies monthly review - The 30 year trend is 2.8% real. We're ~30% above it. As for equity linked investment, I think that it's a bad time in the business cycle to be purchasing. We're at the peak of a boom, company earning have been artificially inflated by interest rates (and hence loans) that have been too low for too long. Due to the rapid increase in money market interest rates that has occured both in the UK and around the world since the summer (and which were the cause of the 'credit crunch') I'd expect company profits to fall as the full effects of less available loans and higher interest payments feed through over the next 12-18 months. Having made annualised returns of

17.3% above the market over the last 6 years I think that there is a greater probability that I'll make significantly less than what I can get from a savings account, so I've sold all my shares and put the money in a savings account. I'll review things in 1 year.

If I was investing, these are the strategies/investments would be using -

I'd use -

and invest in one of the following, in order of personal preference - High yield, buy and hold strategy High yield, change each year iShares FTSE UK Dividend Plus Jupiter Income Invesco Perpetual Income Invesco Perpetual High Income

If you wish to investigate the first 2 further see these examples of long term returns from investors on The Motley Fool (TMF) forums -

TMF posters 11%pa dividend growth over 40 years -

TMF posters 9.5%pa return over 20 years -

TMF posters 11%pa return over 35 years -

The income (yield or interest) is a good comparison of the value for money offered by different investments -

Cash 5.75% (BoE base rate) Equities 2.98% (FTSE 100 yield) Property 4.6% (Association of Residential Letting Agents (ARLA) Buy To Let Index - Cash purchase - no mortgage)

Now take into account the risk of each and any extra fees which reduce these returns, and you can maybe see why I feel the way I do.

I'd do what you were thinking of and place everything in a cash account for 1 year and then review.

Talking to an IFA (make sure they're independent see

) is a good first step, but be aware that they do not generally advise on cash accounts, equities or property because they make no commission on them. Instead they recommend bonds, Unit trust funds and OEICS which pay them, sometimes large, commission. Due to the large amount involved I would pay fees and get all commissions refunded (get it in writing) as this is a fairer way of paying. Let us know what they recommend and we can double check and make sure that the charges are fair.

These links may help -

TMF Childrens savings accounts -

TMF Getting the most out of your IFA - TMF Investing for children - BBC Investing for children - I hope this is not too much information :-) !

Post again when you've had a chance to think things through.

hth

Daytona

Hi Daytona

May I thank you for your in depth reply.

I have just waved bye to the IFA after 2.5hrs of chat, initial visit was arranged through the bank and no fee at this stage. Satisfied that he is Independant. Looking at fee's, if I pay as you go, minimum is about £1500 + Vat, he has said that if I go for them to get commision then no fee, and advice over the matter for as long as the trust exsists is free and I can call him/email at any time. Upon reading the fee's sheet and the recomendation (Which I think is a bond that spreads the investment for low to med risk (apparently had a

50% increase in the last 5 years)) the initial fee commision charge looks like about 5% which is 6k??? This appears high, but as part of that cost is him setting up the trust etc???. Which I suppose I would have to pay separatly??

Also I understand I can take 5% from the profits every year with no tax implications which they would help with if required as part of the commision route, so maybe another reason??

The cash is a difference in a property sale and purchase, I can not have it my account due to the interest affecting my Tax Credits, also can't have it in savings account in a childs name with my control because as I understand it if I control I am liable for the interest as my income?

Happy for the advice re fee's, as I think 6k is a lot, also although it may not be the best time, I can not hold onto them, and need to package them off for the kids for the future? Only have 10 mins for this reply, so will check out the links later.

Thanks again Phil

You're welcome :-)

Which bond is it ?

Bonds seem to be the answer to everything as far as IFAs go. The commissions are about the highest you will find on any product. 5% sounds correct :-( The trusts are all standard and easy to set-up. The Life company sets up thousands every week and I'd doubt if it would actually cost more than £500. Given that I'd expect the fee/commission to cover it.

What type of trust is it ? Some trusts allow the beneficiary (your son/ daughter) to get all the money at age 18, some at 25, I think only a discretionary trust allows you to keep control of it. See HMCR link below.

Bonds are generally not suitable as long term investments because the hold too many fixed interest investments which are slow growing. Equities & property are regarded by advisors as high risk, but over a

10 year period they beat just about everything else, so they're not risky if kept for long periods, and things like cash of fixed interest investments are risky if kept for long periods because they only just keep up with inflation.

He's trying to justify his commission. The life company does it. Either you or he can say 'sell 5% of xyz bond and send me the proceeds'. It's simple.

Yes I think that's correct for a bare trust. There are other trusts where your son/daughter can get all the money at 18 or 25, or a discretionary trust where you keep complete control but are not liable for tax. I don't know much about trusts so check the HMCR link below.

6K is too much. I think you've been badly advised, but without knowing how much control you want them to have of the money it's difficult to say. Did the advisor actually recommend a trust ? The trust is just a legal wrapping around any kind of investment or savings account. The easy option is for an advisor to sell a life insurance investment product that comes with the trust wrapping. I think you need to investigate a trust that gives you freedom to invest in anything eg savings accounts, equities, OEICS, unit trusts, investment trusts, property. I think you should talk to an IFA with the 'G10 Taxation and Trusts' and/or 'J02 Trusts' qualification, search for one here - you'll need to ring them up and ask about the qualifications as the site doesn't list them. or search for a solicitor with 'Financial and investment' and/or 'Trust law' here - Something else to consider which I forgot to mention is paying a relatively small amount (£10K) into a pension may be a good idea because they can only get their hands on it when they are aged 55. So if they manage to spend everything else then they still have a pension ;-) !

TMF forum comments on investment bonds -

131331&sort=whole#10132866 TMF Make your child a millionaire - Basic guide to investment bonds - HMRC guide to trusts - Should I go with with-profits advice? - 7 The Death Of With-Profits Plans - TMF Investing for children forum -

hth

Daytona

Here's a table of the probability of shares (equities) beating deposits (cash) and bonds (fixed interest, not the investment bonds the advisor was talking about) -

It's taken from the annual Barclays Capital Equity Gilt Study, which analyses the performance of investments since 1899.

Daytona

You're welcome :-)

Which bond is it ?

Bonds seem to be the answer to everything as far as IFAs go. The commissions are about the highest you will find on any product. 5% sounds correct :-( The trusts are all standard and easy to set-up. The Life company sets up thousands every week and I'd doubt if it would actually cost more than £500. Given that I'd expect the fee/commission to cover it.

What type of trust is it ? Some trusts allow the beneficiary (your son/ daughter) to get all the money at age 18, some at 25, I think only a discretionary trust allows you to keep control of it. See HMCR link below.

Bonds are generally not suitable as long term investments because the hold too many fixed interest investments which are slow growing. Equities & property are regarded by advisors as high risk, but over a

10 year period they beat just about everything else, so they're not risky if kept for long periods, and things like cash of fixed interest investments are risky if kept for long periods because they only just keep up with inflation.

He's trying to justify his commission. The life company does it. Either you or he can say 'sell 5% of xyz bond and send me the proceeds'. It's simple.

Yes I think that's correct for a bare trust. There are other trusts where your son/daughter can get all the money at 18 or 25, or a discretionary trust where you keep complete control but are not liable for tax. I don't know much about trusts so check the HMCR link below.

6K is too much. I think you've been badly advised, but without knowing how much control you want them to have of the money it's difficult to say. Did the advisor actually recommend a trust ? The trust is just a legal wrapping around any kind of investment or savings account. The easy option is for an advisor to sell a life insurance investment product that comes with the trust wrapping. I think you need to investigate a trust that gives you freedom to invest in anything eg savings accounts, equities, OEICS, unit trusts, investment trusts, property. I think you should talk to an IFA with the 'G10 Taxation and Trusts' and/or 'J02 Trusts' qualification, search for one here - you'll need to ring them up and ask about the qualifications as the site doesn't list them. or search for a solicitor with 'Financial and investment' and/or 'Trust law' here - Something else to consider which I forgot to mention is paying a relatively small amount (£10K) into a pension may be a good idea because they can only get their hands on it when they are aged 55. So if they manage to spend everything else then they still have a pension ;-) !

TMF forum comments on investment bonds -

131331&sort=whole#10132866 TMF Make your child a millionaire - Basic guide to investment bonds - HMRC guide to trusts - Should I go with with-profits advice? - 7 The Death Of With-Profits Plans - TMF Investing for children forum -

hth

Daytona

Again, thanks for the opinions Daytona...

I feel like I wish I had never botherered.. lol. You opinions really do help.

At the time he was under the impression that I was going down the commision route, the bond was something to do with Standard Life and it is spread between 5 things, I assume as you said "savings accounts, equities, OEICS, unit trusts, investment trusts, comercial property"

It was a discretionary trust, this is important for tax reasons, and the fact the kids can not get it whenever they want. We did not talk about the trust as in recommendations??? I am even more confused, I thought a trust was just a legal document stating the Settler, Trustees and the Benefitaries???.

So, could I just setup a trust with My solicitor, then as trustee approach standard life and invest in them myself and keep the commissions and re-invest them back into the fund???

or

Leaving it a few months, I was looking at a property, I understand as a trustee I can not invest in one item, as in a house as I could be in trouble if it goes tit's up. But this aside, I don't know why I can not buy a second property and stick the kids on the deeds and not bother with the trust setup as they will be on the deeds when I pop my clogs or sell and gift the proceeds to them???

Going for a lie down, it has been a long day, but I do feel the recommendations from the IFA are for the highest commission, and I am disappointed in this.

Phil

Was it a Capital Investment Bond ? -

A discretionary trust seems the correct choice and it is, as far as I know simple to set up - I wasn't sure which one you chose.

Here's some comments about discretionary trusts on The Motley Fool - Investing for Children forum -

Life companies only pay commission to advisors, not clients. If you buy direct from the Life company, they keep all the commission, so as not to upset their advisors by undercutting them. Your solicitor could set one up - talk to them and find out what's involved - setup cost, annual costs, whether you can invest in the same products that you could in you were investing for yourself outside of a trust etc

These are another group of experts, if your solicitor can't help - Society of Trust and Estate Practitioners -

00

You can do that, but the property is then there's to do with as they wish, you do not have control as you do with a discretionary trust.

Sadly it's normal behaviour.

hth

Daytona