What's the best way to gift money to my grandchildren?
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I reach my 70th birthday this year and would like to mark it by giving some money to my eight grandchildren – probably about £5,000 each. They are all under 18 and I don’t want to give it to them as cash as they’d just waste it on trivial things, so have been thinking about giving them Premium Bonds or some kind of safe investment for their future. What do you suggest?
Phil Beck of Smith & Pinching responds:
What a lovely way to mark your birthday! There are a number of different options that might fit the bill.
Premium Bonds continue to be popular as they provide the possibility of a big win. They can be purchased from NS&I (formerly known as National Savings & Investments) and are completely secure as NS&I is backed by HM Treasury. Both adults and children can hold up to £50,000 in Premium Bonds. You must, however, get a parent or guardian’s permission to give NS&I the child’s details and they must be happy to look after the investment until the child is age 16.
The ratio of prizes has gone down recently as NS&I changed its rules, but they can still provide a reasonable return if you are lucky enough to win prizes. Prizes range from £25 to £1 million each month.
An alternative might be to contribute to a child’s Junior ISA (JISA). Their parents/guardians would have to set up the JISA and manage it until the child reaches age 16. At that point, the child can manage their JISA account but not access the money. Once the child reaches age 18, the JISA is changed to an adult ISA and can be accessed by the holder. Returns or growth in a JISA are tax-free. You can put up to £9,000 per year into a child’s JISA.
Many banks and building societies have accounts that are suitable for children. The minimum age for an account is generally age 11 – although some banks offer a savings account for younger children.
Another alternative might be to set up a pension fund for them with the money. However, pensions can’t be accessed until the minimum retirement age, so it would be many years before they could benefit from the gift.
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If you have specific requirements and conditions for your gifts, you may want to consider the use of trusts. There are costs involved with setting up and running a trust so it’s critical that you get legal and financial advice before going down that route.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk