Turning 18: Beyond The Cake And Candles

As your daughter or grandson prepares to celebrate their 18th birthday, party plans may be the focus but there are some important consequences to this big day that go beyond cake and candles. In this article, I am focusing on some of the legal implications of becoming 18. Specifically, I’m explaining what the next steps are for those 18-year-olds lucky enough to be the beneficiaries of bare trusts or to have JISAs set up on their behalf.

In the case of a bare trust, the trust is created when the settlor (usually Grandad, Granny or Dad and Mum) opens an account and funds this for the benefit of a young person who has not yet reached their 18th birthday. There is no limit to the amount of funds that can be contributed once the trust has been established and there are significant taxation benefits to the structure. The assets are managed for the benefit of the child until their 18th birthday in accordance with the instructions of the trustees, generally, also, Grandpa and Grandma or Mum and Dad.  On the 18th birthday of the beneficiary, the young adult is automatically entitled to full use of the assets of the trust. The birthday boy or girl can choose how the investments are to be managed and can, if they wish, liquidate any holdings, and use the money on a gap year, a car or however else they might wish. In some cases, however, the 18-year-old would prefer not to have the responsibility of making decisions about how much investment risk they want to take or what type of mandate the assets are invested in. We can put in place arrangements that allow Mum or Gran to give full instructions over the account or, at least, to also receive copies of valuations and be involved in discussions about the future. The key point here though is that the 18-year-old has control; they can choose who to involve, or not, and whether to remain invested, or not.

Regarding the newer Junior Investment Savings Accounts (JISAs), these can also be created by a relative on behalf of a minor child at any time before the individual reaches their 18th birthday. Once the cash or stocks and shares account is established, there is a limit on annual contributions (currently £9,000), but the assets held in the account are free of tax liability. JISAs are very widely available from High Street banks and some grandparents chose to establish several JISAs for their grandchildren, a mix of cash and stocks and shares accounts. This is allowed providing the annual contribution is not exceeded. Once the JISA holder reaches their 18th birthday, the account(s) will automatically be converted to a cash or stocks and shares ISA. Again, the birthday boy or girl then has the right to use the assets held as they see fit. They may decide to help with university fees or to leave the money alone to fund a future deposit for a property; in either case, this is the decision of the account holder, not the grandparent or parent.

Some young people born between 2002 and 2011 will have the benefit of a Child Trust Fund. The JISA scheme replaced Child Trust Funds and one individual cannot benefit from both. The annual contribution limit is also £9,000 and, again, once the beneficiary is 18, they are absolutely entitled to benefit from the Fund without restriction.

There will be some 18-year-olds who are conversant with financial terminology, take a keen interest in market news and can explain the impact of inflation on savings. Maybe your grandchild does listen to podcasts by Warren Buffet and plans to study economics at Uni. However, many young people lack financial knowledge and experience and need guidance as they take responsibility for their financial future. We encourage you to reach out to your CAM team if you’d like our help in advising you on the options that your children or grandchildren face and, importantly, provide direct support to the younger members of your family as they reach a milestone birthday, navigate the world of work or face the financial realities of University.