Investing for Grandchildren — Get the Arrangement Right First

There are two broad arrangements and they have different consequences.

In the child name. The investment belongs to the grandchild from the start, held in a folio for a minor. A parent or legal guardian operates it until the child turns eighteen, which often means the grandparent is not the person with authority over it.

In the grandparent name, earmarked. The grandparent holds and operates it, intending it for the grandchild. Control stays with the grandparent, and the arrangement depends entirely on the grandparent intention being known and on the nomination being right.

Neither is wrong. The choice turns on whether you want the money to be the child own from the outset or want to keep control of when and how it is passed on.

A folio in a child name has rules that surprise people who have only held their own.

The child is the sole holder, with no joint holding permitted. A parent or court-appointed guardian operates it. The bank account linked to it generally needs to involve the child rather than belonging only to somebody else.

At eighteen, the folio has to be converted to adult status, which needs the young person own signature, bank details and KYC. Until that happens, transactions stop, and any running instruction stops with them. Our page on the folio covers this in more detail.

The practical consequence for a grandparent is that contributing to a minor folio usually means contributing to something the parents operate. That works well when families communicate, and it is worth understanding before committing.

Many grandparents prefer this, and it has real advantages.

You keep control over the investment and over when it is used or passed on. You can decide at eighteen, or at twenty-five, or at a wedding, rather than the money becoming the young person own automatically at a fixed age.

The dependency is on two things. The nomination has to reflect your intention, and the family has to know the money exists and what it was for. Our page on nomination covers the first and explains why a nominee receives units without necessarily settling who ultimately keeps them. The second is a conversation, and the most important thing on this page.

Where the intention matters legally, a will is the instrument that settles it, and that belongs with a lawyer.

Money set aside for a grandchild born recently may not be needed for eighteen years or more. That is a long horizon, and it allows the money to sit in holdings that can grow and take the ordinary movements of markets along the way.

The complication is that the grandparent horizon may be shorter. So the investment decision should be made on the child horizon, and the paperwork decisions should be made on the grandparent own, which is exactly why the arrangement matters more than the scheme.

Our pages on child education and a child marriage cover the goals this money most often ends up serving, and asset allocation covers reducing risk as a date approaches.

Grandparents often contribute in lumps rather than monthly: at a birth, a first birthday, a festival. That is a perfectly sound way to do it.

A monthly instruction suits a grandparent with a regular pension who wants something running quietly. Occasional lump sums suit gifts tied to occasions. Both can go into the same folio.

What we would avoid is a grandparent stretching their own finances to make a larger contribution. Money you might need for medical costs in your seventies does not belong in an eighteen-year commitment for somebody else, and our page on investing for senior citizens covers keeping your own position secure first.

This is the single most useful step, and it is often skipped out of a wish to keep it a surprise.

Parents may be planning the same goal already, and two uncoordinated arrangements for one child education are common. Parents also need to know what exists in case they are the ones dealing with it later.

Where the money is held in the grandparent name, the parents knowing is what turns a good intention into money that actually reaches the child. We have sat with families discovering an earmarked holding only after a grandparent died, with no nominee and no note, and the intention was lost in the process. Our post on what happens afterwards covers the mechanics.

• Make sure your own position is secure before committing to anyone else.
• Decide whose name the money should be in, and why.
• Talk to the parents about what you plan and what they already have in place.
• Set the nomination to match your intention, and consider a will.
• Invest on the child horizon, reducing risk as the goal approaches.
• Write down what exists and tell somebody where it is.

We do not advise on wills or guardianship, which belong with a lawyer, as our post on the questions we cannot answer explains. What we can do is set up the arrangement you choose and keep its records current. Get in touch.