Families urged to think beyond Child Trust Funds
Published: 16th April 2007
A leading law firm is urging families to ensure they plan shrewdly for their children's financial future on the second anniversary of the introduction of the Government's Child Trust Funds (CTFs).
Mace & Jones private client solicitor Paul Bricknell said that CTFs are a limited form of saving. He pointed out that the rules on CTFs state that only a child born on or after 1 September 2002 is eligible for a £250 voucher from the Government. Moreover parents are only able to top up the account to £1,200 per year.
"If parents are wanting a serious nest egg for their children then CTFs are only one piece of a much bigger jigsaw," he said. "We would advise families to look at a range of issues when planning their childs future including setting up other saving funds which may not pay out until the child is 25. It is worth remembering that a CTF pays out to the child aged 18 and you can't stop the child receiving the money at 18. By this time a CTF could easily be worth £40,000 and the parents will have no control over the money. I am not convinced receiving such a large sum of money on your 18th birthday is such a good idea. Whilst the parent might wish for the money to be used towards university tuition fees the child might see a new car and a holiday as a higher priority."
Mr Bricknell urged parents to plan for all eventualities including death.
"What planning have you made in your will if you die before your child is 18? Does the will have a letter instructing the trustees to follow certain aspirations for the child for example schooling and university education? Do you have adequate insurance to provide for your children if you were to die? There are many important factors which need to be addressed when planning for a child's future including wills, tax planning, life trusts and other forms of saving and the CTF is only a small part of it."
Mr Bricknell stressed that if grandparents wished to make provision for their grandchildren there may be more flexible ways of doing so than using a CTF.
"For tax efficient reasons it is important to properly organise the grandparents contribution to their grandchildren," he said. "For example if a grandparent wants to pay towards education there are tax advantages in giving cash into a trust for the grandchild rather passing the money to the parents."
The latest figures released by HM Revenue & Customs (HMRC) show that more than 2.6 million CTF accounts are now open.
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