Child Trust Funds – accessing a disabled child’s savings

Twenty years after Child Trust Funds were introduced, problems for some disabled children and their families looking to access their savings continue.

Millions of children born between 2002 and 2011 received between £250 and £500 through the then-Labour government's long-term, tax-free Child Trust Fund scheme.

The scheme was pulled in 2011 leaving thousands of pounds in the scheme waiting to be drawn out.

But it did not realise how the Mental Capacity Act - designed to protect people who lack capacity - would affect some families trying to access savings.

Those holders, who have now come of age but lacking capacity to manage their property and financial affairs, face a complicated and drawn out legal process with their families forced to make an application to the Court of Protection for a Deputyship order to access the savings.

The trust holders may also face lower benefits.

Stephanie Chung, associate in the private client team at Wake Smith looks at the issue.

This article covers:

• What was a Child Trust Fund?
• When and how do you access the fund?
• How do families of adults lacking capacity gain access to their child’s money in a Child Trust Fund?
• What is a deputyship?
• Do different amounts of savings warrant different procedures?
• What about Child Trust Funds and eligibility for Universal Credit?
• Changes since 2020
• Your next move

What was a Child Trust Fund?

Introduced in 2002, every child born between 1 September 2002 and 2 January 2011 was eligible for a child trust fund, introduced by Labour to encourage regular and long-term savings in a tax-free account that the child could control at 16, but not withdraw funds until 18.

Offering various tax benefits, once matured the child could transfer them into an ISA to retain these benefits.

They were scrapped in 2011, which left hundreds of thousands of pounds in the funds.

When and how do you access the fund?

In 2020, the first of the children started to turn 18, with many wanting to access their funds.

To do this, the 18-year-old must set up another bank account in their own name for the funds to go into – easy for many, but not all.

Adults lacking capacity to manage their property and financial affairs may not be able open a bank account in their own name, and their parent or guardian cannot do it for them.

How do families of adults lacking capacity gain access to their child’s money in a Child Trust Fund?

It is estimated about 80,000 young people have savings in trust funds and are unable to unlock their money without going to court.

The only way is for the parent or guardian to make an application to the Court of Protection for a Deputyship order. This can be a long, stressful, and costly process involving paperwork, doctor’s reports and often legal representation at court.

What is a deputyship?

A Deputy manages another person’s affairs. Where a person lacks capacity to deal with their own financial affairs, this ensures checks and safeguards are in place against financial abuse and there is no mismanagement of the person’s finances whether intentional or not.

Once appointed, a Deputy is subject to onerous yearly reporting and regulatory framework to account for all spending and money received.

Deputies can be investigated and even be removed if they don’t meet exacting standards.

Only a further Court application stops a person being a Deputy.

Deputies must also take out a costly insurance policy to protect the funds they are managing on behalf of the person who lacks capacity, with the duties continuing even after the fund monies have been used.

Do different amounts of savings warrant different procedures?

In some cases where the funds hold a few thousand pounds potentially used for a one-off purchase or over a relatively short period of time, it might not be necessary or appropriate for a Deputy to be appointed for life to manage such a relatively small sum of money.

For larger amounts that could last many years a Deputyship is vital.

Concerned parents say the disproportionate cost and time of such an application and the relatively small amounts of money which can be claimed, means a lot of hassle for hardly any return.

What about Child Trust Funds and eligibility for Universal Credit?

Of the 80,000 young people who have savings in trust funds, and are unable to unlock their money without going to court, around 4,000 of those are eligible for universal credit, but will receive lower payments because they have more than £6,000 in their accounts.

Using data from two trust fund providers, BBC News calculated around 9% - about 7,000 - of those disabled young people have more than £6,000 in their accounts.

Of those, more than half will be eligible for universal credit, according to government figures on the population as a whole - and will see reductions to their monthly payments.

Changes since 2020

Since December 2020, if an application is made before the child is 18, the court will consider waiving fees, if the child has no other assets or income and the Court of Protection order is needed purely to deal with the CTF.

Payments made into the account had an original upper limit of £1,200 per annum and have since risen to £9,000 in the 2021/22 tax year – meaning that by the time children turn 18, some funds could be worth at least £70,000.

 

Your next move

Accessing Child Trust Funds for families of disabled children especially, can be daunting. We can guide you through the process of Deputyship.

Wake Smith can also help parents and grandparents of children with additional needs with estate planning and preparing their Wills.

For further information please contact Stephanie Chung on 0114 224 2114 or [email protected]. Alternatively click the contact button below to submit an enquiry. 

Published 30/06/23