Katherine Druckman

A woman I know asked my opinion about this topic, and I think this article sums up one good route (even though it is from the UK).

COPYRIGHT 2003 Financial Times Ltd.

(From Aberdeen Press & Journal (UK))

I Wish to invest for my grandchildren’s future. I have read about the use of trusts, but am concerned they are complex to set up and incur high running costs. Could you please give me some guidance? – PB, by e-mail Ron Cameron, Ernst and Young Financial Management’s regional manager for Aberdeen, said: The use of trusts for gifting is certainly a good idea. However, you must be aware that as soon as you have made the gift into the trust, you have given up any right to get access to the capital for your personal use or to any income or gains thereafter.

The trust could be for the benefit of your current and future grandchildren. You, as a trustee, would maintain control over investment decisions and timing of income/ distributions to the grandchildren. I would almost certainly recommend that you consider having additional trustees, such as your children. There are three types of trust to consider – life interest trusts, accumulation and maintenance trusts and discretionary trusts. All of these have slightly different tax treatments. An accumulation and maintenance trust (or possibly even a flexible life interest trust) may be the most appropriate for your circumstances. This will allow you to gift outright and, as long as you live for seven years after the gift, it and any growth would be outside your estate for inheritance tax purposes. It may be advisable to invest through collective investments such as unit trusts, investment trusts or offshore/ onshore investment bonds. Investing through a direct share portfolio may not achieve sufficient diversification and could expose the trust to too much risk. To keep the cost down, you may wish to consider using specimen trust wordings provided by investment houses and insurance firms in conjunction with investing the funds into their products. The product providers do not charge for this service. However, they do not accept any legal liability on the use or efficacy of the trust document. I would also always recommend that you consult your solicitor to confirm that he is satisfied with the legality of the specimen trust document. As with all financial planning decisions, it is important that you consult your financial adviser.
COPYRIGHT 2003 Financial Times Ltd.