My wife passed away recently and asked me to set up a form of trust fund for our four grandchildren, aged 18 months to eight years old. She didn’t want them to get access to this until they reach 28 years old. Who would be best to advise on this and where should it be invested?

– B Maguire

It’s nice to pass on your money: the worry is what the recipient will do with it!  That’s why many people in Ireland look at trust funds to pass money down the generations, while retaining some degree of control over how the money is invested or spent.

In practice however, it’s hard to dictate how money is spent when you give it away.  In particular, once children are over 21, it’s hard to attach strings to the money you wish them to benefit from.  The way the State sees it, if someone can vote, marry, and join the army, then they shouldn’t be separated from assets which exist for their benefit.

There are exceptions.  Two are worth noting.

Firstly, there are concessions for trusts set up to benefit adults with a disability, where there is a legitimate need for trustees to guide their long-term financial wellbeing.

Secondly, if you’re passing on large sums – say seven figures plus – then establishing a discretionary trust could be an option.  Here, you’ll need specialist legal advice, individuals whom you can count on to act as trustees, and a detailed plan to invest the assets over time.  You’ll also have to contend with an initial tax of 6% on the value of the trust, and 1% annually.

We’ll assume that, like most people, you are looking to pass on more modest sums.  If that’s the case, then you still have an ideal timescale to generate meaningful investment returns for your grandchildren – and maybe teach them some money lessons along the way – before they reach adulthood.

The starting point is often the annual small gift exemption. This allows anyone to give anyone up to €3,000 per year without incurring inheritance or gift taxes.

That mightn’t sound like a life-changing amount, but if you gave it to each of your four grandchildren for the next twenty years, then you’d have advanced €240,000 in total.  Even with a prudent 5% forecast annual investment growth, that could be worth over €100,000 to each grandchild.

If you wished to advance more to kickstart the investment, you could consider passing on an amount up to the tax-free gift threshold for a grandchild, €32,500, right away.

As to investing the money: that can be as sophisticated as you like.  But there is merit in looking at the life assurance companies here, which can offer a range of professionally managed and index funds tracking major markets, automated investing, monthly direct debits, and taxation at source.

Most of the main life assurance providers have off-the-shelf trust deeds which you can use to put the money into trust for each grandchild’s benefit.  There are also requirements around registering the trust which any competent advisor can guide you through.

 

This article is adapted from a Moneycube column which appeared in the Sunday Times on 14 July 2024.

 

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