Child Trust Funds
Next week thousands of children will turn 18. Some of these children will be the first of many children to make withdrawals from their Child Trust Fund that their parents or guardians may have set up for them.
The Child Trust Fund is a long-term tax-free savings account scheme for children. It was set up in 2005 by the government for children born between 1 September 2002 and 2 January 2011. The government provided a £250 top-up into the account (£500 for lower income families). Children on disability living allowance also received additional top ups. Depending on contributions, the value of a Child Trust Fund can be worth a lot of money.
The scheme has closed, and parents can instead set up Junior ISAs for their children if they so wish. Parents can contribute up to £9,000 per year (in 2020/21) to an existing Child Trust Fund. The year starts on the child’s birthday and ends the day before their next birthday the following year.
Many parents have lost touch with their Child Trust Fund provider. This means that those Child Trust Fund accounts are considered to be “lost." HMRC have a service to assist the location of the Child Trust Fund. If you cannot locate the Child Trust Fund provider, you can contact HMRC for help with this link - https://www.gov.uk/child-trust-funds/find-a-child-trust-fund
An important aspect of a Child Trust Fund is that the money belongs to the child. The child is able to control the account (such as change provider) when they reach 16. As it is a child trust fund, the child will not be able to withdraw the money until they reach the age of eighteen.
However, this process is not straightforward for young people who lack mental capacity, perhaps because they have a particular disability and/or vulnerability.
Young people who lack mental capacity will not be able to access the money when they reach the age of eighteen. The government would seek to provide the money to an attorney or a deputy in their stead.
The Parents/Guardians who are looking after the young person will not be able to access this money (as it belongs to the young person).
The young person will be assessed as owning the money for means-tested benefits. This is despite the fact that the child would not be able to spend the money.
At the moment, the current solution for these young people is for the parents/guardians to make a Court of Protection application, so they can accept the money from the government as a Deputy on the young person’s behalf. A Lasting Power of Attorney would not be appropriate if they lack capacity.
Aside from the cost of the application, there is also the considerable delay, as the Court of Protection is handling a backlog of cases due to Covid-19 and would prioritise other cases.
Court of Protection applications can be costly. At the current rate, the application fee alone is £365 and there would also be an additional cost of £485 should the court decide the case needs a hearing.
These costs, coupled with solicitors fees (if solicitors are instructed) could mean that the application alone would cost more money than the money actually sitting in the Child Trust Fund. However, if the disabled or vulnerable person needs a Deputy in any event to manage their finances when they reach adulthood, the costs could be considered to be proportionate.
However, this has caused distress to families already facing the challenges of having a family member who has a vulnerability or disability who believed they were establishing their child’s nest egg, rather than, in effect, making a down-payment on a legal application.
If you would like any advice on deputyship or Lasting Powers of Attorney please do not hesitate to contact us on 01992 422128.