What should we do with our son's inheritance to help with his higher education?
04 April 2019
Question by Mo
Our 16 year old son inherited a significant sum (over £200k) from his late grandfather a few years ago, which was left for me (as parent) to manage on his behalf. It's currently saved/invested as follows: £140,000 as part share of a rental property (with his brother) which yields c. £5000 year and 2-3% capital growth £50,000 in a current account earning 2.5% £20,000 in Junior ISAs paying 3% £10,000 in a S&S JISA invested in a low cost global tracker fund (Vanguard). My son wants to go to Drama School and pursue a career in acting, which we know means he is likely to be low paid/short of cash. I wondered how best to help him organise his savings/investments to help fund him through drama school/the early years, whilst trying to discourage him from simply dipping into his capital?
Answered by Pete Matthew
You don't say when the money can be paid to your son for him to manage in his own right.
In the absence of a clearly-written trust, this is likely to be age 18, so you need to begin the process of helping your son understand the implications of this sooner rather than later. Given that you have invested in Junior ISAs for him, it doesn't sound like there's a trust involved at all, and as you know, money in ISAs becomes his at age 18.
The excellent rate on the current account will certainly end eventually, as this is doubtless linked to a child's account which will need to be converted to an adult's account eventually.
As far as how to set up the money to fund him through drama school etc, you will need to work out the costs of this first.
When you know the costs and the timescales involved you can work back from there. Money needed in the short term should be held in cash.
As the £50,000 in the current account will likely need to be moved when your son reaches 18, I suggest that you work out how much of that is likely to be needed from ages 18-21, and find a good high-interest bank account for that. Anything which is not going to be needed before he is 21 could be invested, ideally in a Stocks and Shares ISA so that it stands a chance of growing.
By far the best thing you can do to 'discourage him from simply dipping into his capital' is to teach him about money.
No amount of financial engineering will do the trick if he doesn't understand how money works. Your son has been given a great financial head-start from his late grandfather, and he needs to have the gravity of that instilled into him, and be taught the practical stuff to handle it, including;
- The difference between saving and investing,
- the dangers of bad debt.
I wish your son all the best.
Chartered Financial Planner
Pete is a Chartered and Certified Financial Planner and serves as Managing Director of Jacksons Wealth Management in Cornwall. He is also a prolific financial blogger and podcaster at MeaningfulMoney.tv with a desire to get decent financial information out to everyone who needs it.