A children’s trust fund is a monetary account set up for a child, with the UK government establishing an official program in 2005. The program provided a voucher of £250 or £500 for low-income families, and family members could add up to £1,200 per year. The program was discontinued in 2011, but existing accounts remain with the same rules.
A trust fund is a monetary account set up for someone else to use at a later date. This procedure of setting aside money for someone else is called putting it “in trust” because another party, usually a financial institution, has the responsibility of holding the money and overseeing the distribution of its funds. A children’s trust fund, then, is a trust fund created for a child. The Child Trust Fund is also an official fund set up by the government in the UK.
Children’s trust funds can be established like any other trust fund. Trust funds are generally established by a parent or grandparent, the grantor, with the child or children established as beneficiaries. An administrator manages the trust and distributes the funds. When establishing a children’s trust fund, it is important to research local tax laws to ensure that funds distributed to the child or children are not subject to any taxes, such as gift taxes.
The government established an official children’s trust fund program in the UK in 2005. Under this programme, the government sent each child born after 1 September 2002 a voucher for £250 (approximately US$375). , or 500 lbs. (about $750 USD) if the family met the low-income threshold, to be entrusted for their future with the stipulation that the child, parent or any other party cannot withdraw it until the child turns 18. In addition, the Children’s Trust Fund rules allowed family members to add up to 1,200 pounds (approximately $1,800 USD) to the fund each year, at a maximum rate of 100 pounds (approximately $150 USD) per month.
The rationale behind the decision to start the program was to encourage families to save for their children on a regular basis so that the children would have a large enough fund at age 18 to help with educational costs or other expenses. The government also provided children whose parents did not establish the children’s trust fund by opening the fund for the child if the parents did not open it within 12 months of the child’s birth. The children’s trust fund got off to a rocky start when financial institutions refused to participate in the program. Despite this, the program came to fruition and served as a viable savings program for children who would otherwise have had no savings.
However, in early 2010, the government decided to eliminate the children’s trust fund program effective January 1, 2011. Existing accounts remain child trust accounts with the same rules. Although the government will no longer issue vouchers for the child’s account, family members can still add up to 1,200 pounds (approximately $1,800 USD) to the account each year; interest still accrues tax-free and funds in the account cannot be touched until the child turns 18.
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