Removing funds from minor's investment account

L

Loki1974

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Hi all , I am aged 49, married with one child . We have a net worth of circa €1.5 million and currently contribute at the max limits to our pension . I am concerned about our son’s CAT liability when myself and my wife pass, particularly because he is an only child . I was considering starting an investment fund for him and lodging €6000 per year in it , which is the maximum that we can legally gift him . It at some stage in the future we got into financial difficulty whether that be a job loss or something similar would we be able to withdraw funds from our sons account , specifically before he turned 18. Many thanks
 
I suppose given you’re nearly 50, you could access your pensions if you lost your jobs, which may provide extra security.

In terms of taking money back, I think you’d be on a sticky wicket unless you had a third party trustee while the child’s a minor (e.g. the child’s aunt or uncle) who could formally agree to lend money back to you.
 
Loki1974 said:
It at some stage in the future we got into financial difficulty whether that be a job loss or something similar
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You are 49.
If you lose your job at 59, there will be "only" €60k + return in the fund so it's unlikely to make a huge difference to you.

So just set it up and forget about it.

Brendan
 
You can gift him as much as you like

€ 6,000 is the maximum which is tax-free per annum (2 x Small Gift Allowance of € 3,000) although you can gift him up € 335,000 tax-free in a lifetime
 
jpd said:
You can gift him as much as you like

€ 6,000 is the maximum which is tax-free per annum (2 x Small Gift Allowance of € 3,000) although you can gift him up € 335,000 tax-free in a lifetime
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I know the limit , it’s just that there will be a significant CAT bill for the difference given that he is an only child . I would not be as concerned if we had more kids
 
Thanks Brendan and Gordon . It’s just that our money is tied up in property and pensions . I would be very reluctant to access my pension early when if necessary we could access our sons account . Problem is he is currently only 4 years old so if anything happened between now and when he is 18 , it would be good to know if we could access his account in an emergency. I could ask my sister to be a trustee , if that would help in getting around the problem .
 
Loki1974 said:
if necessary we could access our sons account .
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If you think you will need access to it then you can't afford to do it now.

In the greater scheme of things, you are not really making a major difference to your son's CAT bill anyway. Your son will face a fairly substantial bill either way.

At the moment, it stands at ~€385k and will continue to grow as your wealth grows. For every year you contribute the full €6k, you are only reducing the future CAT bill by €2k. Not to be sniffed at but not really significant relative to the overall bill.

And in reality, that CAT bill probably won't arise for at least 30 or 40 years so it's not worth worrying about now. The best thing to do now is either delay starting the fund for a few years until you are more comfortable with your own finances or start now but contribute less.

You can't have it both ways where you retain access but your son gets the CAT benefit
 
I know it’s only €6 k a year , but every bit helps . I actually worked out his CAT liability earlier today , which prompted my query . You are correct on the €385k . Chances are that his ultimate liability will at least double or triple over the next 30 or 40 years . It’s extremely frustrating how much he will have to be pay , solely based on the fact that he is an only child . It’s a difficult pill to swallow him having to pay hundreds of thousands of euro when it was earned by me on a very modest salary .
 
He doesn’t think they’ll need access to it. He’s just worried about an armageddon situation, for which there’a a playbook…just take a loan from their son.
 
If you lost your job in your 50s and needed access to cash, I don’t see the big deal with accessing your pension lump sum. We’re talking about an emergency.

I would also observe that conscientious high earners tend to worry most about losing their job or risk, but in the end they typically just make even more money.
 
Have you looked at this?


Also how much of the net worth is related to property inflation? I always think of this as free money...we did nothing to earn the increase in our house value (unless major work went into it). And we get that tax free if we sell. So in reality your house worth less what you paid for it was wealth earned tax free. So your child pays tax if they inherit this untaxed wealth.

I would consider also how your wealth is bundled for inheritance in your later years. If it is all in one property, it will probably have to be sold to pay the tax. But if it is in several different assets, it could be partially sold eg shares, two properties etc. Might help guide some decisions as you age.

And you can also support their education and living expenses in full time education to 25, their wedding etc without them incurring gift tax.
 
You are missing the whole point of setting up the trust for your child. Once it goes into the trust, it is not your money, it is his. You can't just access it in an emergency. The trustees obligations are to the beneficiary and not to your needs. So if you need a few quid, the trustee should refuse to give you the money and they are legally liable for the misuse of funds within the trust. The trust deed is a legal document and there are obligations that go with being a trustee.

If you feel that you may need the money in the future, you should not set up a trust for your son.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 

Back to fundamentals, what expenses do you have that you have that you would need to access the funds in the event that you lost your job? Is there a risk here that you are over committing?
 
If your son has a large CAT bill, it will mean that he will still be left with a substantial inheritance - probably more than a lot of his contemporaries in any case.

And who knows, he might even be a millionaire in his own right or a wealthy pop star or footballer or ...

Don't be worrying about something that might be 20 or 30 years down the road

The CAT rules will undoubtedly be quite different in 20 or 30 years in all probability
 
If you are worried about money issues down the road I would not be looking towards loans from a trust. You have not spoken about pension sizes or if it is one or many pensions. You also talk property. do you have any rental properties that would provide an income outside of employment Another options here is do you have the right insurances in place for a rainy day. Do you have any bill cover insurance, serious illness or life cover where you, your child or partner will get the money.
 
There are life assurance policies that are designed to pay off CAT bills. Talk to an advisor.
 
Not sure people here understand the suggestion I made or how trusts work. The logic of having a third party trustee would be to opine on an extreme emergency situation where the OP needs money. So let’s think about what would face that trustee. A request for a loan to help fund accomodation and food etc for the family which includes the beneficiary. What would a reasonable person do? What would the child do if they were an adult? They’d lend the money. Revenue would have no issue with such a scenario BECAUSE of the presence of the third party trustee.
 
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Not accurate.
 
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