READERS’ QUESTIONS

‘Can I use the small gift exemption to create a fund for the grandkids?’

QI’d like to use the annual small gift exemption to provide €3,000 a year to each of my grandchildren, aged four and one. I’d like to have a fund available for them in 15 or 20 years without creating any unwelcome inheritance tax implications for them.

Standard Life used to provide guaranteed with-profits life assurance policies but it no longer does so for new customers. Is there any other company providing this, or is there another secure product that would suit instead?

Also, I’ve tried to find an independent financial adviser, one who’s not tied to any particular assurance or investment provider, but it seems impossible to do so. Can you provide any assistance?

Bill, Galway

AYour desire to tax-efficiently provide a meaningful legacy for your grandchildren is admirable -- it’s an opportunity that is too often left unused.

However, with-profit assurance policies may not be the optimal tool to achieve your goal; they’ve been found to be rife with conflicts, high fees, a lack of transparency, and they have significantly underperformed in recent times. They are a dying breed of assurance product.

Many people are now using equity-based regular savings schemes set up under trust for their intended beneficiaries.

By setting up a savings plan under what is known as a bare trust, you can gift money to a child under the age of 18 every year by making payments into the policy.

The beneficiary doesn’t pay gift or inheritance tax, and the proceeds are invested as per your wishes within the policy fund choices.

We’ve seen instances of parents setting up an investment account for children, using a bare trust structure, and then legitimately seeding these accounts with a loan and using the annual €3,000 exemption (€6,000 in total from both parents) to write off this loan each year. This way, you can write off €50,000 for each child in about nine years, while the full amount invested grows in the children’s names from day one.

You could then seek to instruct that any remaining outstanding loan balance is written off in their will, potentially sheltering it with the Capital Acquisitions Tax threshold.

Once a child turns 18, they own these accounts and can withdraw the funds at that stage if they want. But a bare trust can’t be revoked and the beneficiary named at the outset can’t be changed. There are several providers of

regular savings plans under bare trusts, including the one you mentioned.

As regards your second query, truly independent financial advice in Ireland is like the proverbial needle in a haystack. We are one of the only such firms remaining, I believe.

That said, while many of the independently owned boutique firms that do “real financial planning” may not be fully independent, they still offer superb qualified advice and choice. Many will work on a fee-only basis, so there’s no murky commissions or hidden agendas.

‘I’ve €50k of prize bonds but I never win. Should I put my cash elsewhere?’

QI received an inheritance of €50,000 that I’ve kept in prize bonds for the past four years. During that time, they haven’t kept up with inflation and bring in only a couple of hundred euros a year.

I was content knowing that money was safe and that I could access it when needed – but I didn’t win anything in 2023.

Not even the smallest €75 prize.

If I’d only a few bonds, I’d accept this, but it is a very large number of bonds.

What’s more, the amount of prizes has increased – which should have improved my odds. When I queried this, I was told it was ‘the luck of the draw’.

Am I just unlucky, or has the number of prize-bond holders increased so much that the odds have dramatically slimmed? If so, is there a better place for that lump sum so that it can generate interest?

My wife and I are considering become homeowners when the market calms down a bit.

Harold, Dublin

AThe most recent change to the rate of prizes paid each year was in October, when it was increased from 0.35pc to 1pc of the total value of prize bonds.

There are about 9,000 winners of the €75 prize. So it does appear that your reduction in yield is indeed ‘luck of the draw’, or lack thereof. However, the very nature of prize bonds means that in any one year, the average holder will struggle to keep up with inflation, while the outliers will either win big or nothing at all.

But there are alternatives.

You mention that you hope to use the funds to buy a home in the future, so you may not wish to expose your money to large degrees of volatility. In that case, a bank deposit account may be the appropriate alternative.

Our remaining domestic banks offer fixed-term deposits with interest of up to 3pc a year. While many have turned to foreign banks to achieve rates of up to 5pc, be aware that you’d have to complete a tax return to pay Dirt tax. Either may or may not deliver a greater yield than your prize bonds over the coming years.

You can send your questions to g.monaghan@independent.ie