It is one of the side effects of better healthcare and living conditions that it is no longer surprising for children to have all four grandparents alive until the children are 18 years old. The sight of great-grandparents holding an infant is also much more common than it was 50 years ago.
This can have many benefits for the parents. They may be able to involve the grandparents in the daily school run, the endless number of journeys to take a child to a friend’s house, the shopping trip, and so on.
In a financial sense, the grandparents may also be able to shoulder some of the burden, particularly when it comes to University and buying a first home.
So it is not surprising that solicitors often are asked to advise on how such expenses can be funded. If your clients have savings they may be able to pay for a grandchild’s tuition fees or the deposit for a house purchase by drawing on those savings. A better plan is to think ahead and set up a scheme that will enable the grandparents and other relatives (but not the parents) to build up a fund to meet these expenses. Like any long-term plan, the earlier you start the better.
One way to achieve this is to create a ‘pilot trust’ with a small initial payment of say £10 and add to the trust fund as the child grows up, so that by the time he or she is 18, a reasonable sum has been built up.
Each grandchild should have his or her own trust. If you intend to pay regularly, £3,000 per annum is probably the maximum any one donor should contribute. If you make a one-off transfer of investments, make sure you do not unintentionally trigger a Capital Gains Tax charge. At its simplest, the rule is such that the investment should not be worth more than £10,000 more than it cost you.
The trustees will need to complete an annual Income Tax return and take independent financial advice to make sure that they invest prudently.
For grandparents who wish to make smaller payments, there are endowment policies that Insurance Companies issue. These will provide a lump sum on a fixed date such as the child’s 18th birthday. An IFA can give you further information about these.One idea that I know of is aimed at helping the child at University with his or her accommodation. The family buy a house in the area near to the University in question. The student finds a few friends who agree to share the house, the friends paying perhaps a little less than the market rent, the student paying no rent and when the course ends, the house can be sold or transferred to the student.
You can of course provide for grandchildren in your Will. Lifetime gifts are more fulfilling as you can direct that the money be spent as you decide, and you might even get a thank you.
The above is general comment only and individual advice should be taken.
John Riddett can be contacted at Blocks Solicitors Telephone 01473 230033