Easier Access to Child Trust Funds for Young Adults Who Lack Capacity

The Government has announced plans to make it easier for a parent or carer to access a Child Trust Fund belonging to a young adult who lacks the mental capacity to manage it.

The proposal could allow a suitable person to apply directly to the Child Trust Fund provider, without first obtaining an order from the Court of Protection. However, the new process is not yet in force, and important details still need to be agreed.

Why are Child Trust Funds difficult to access?

Child Trust Funds are tax-free savings accounts established for children born between 1 September 2002 and 2 January 2011. The money belongs to the child and normally becomes available when they turn 18.

The difficulty arises if the young person cannot make the financial decisions needed to access or manage the account. A parent does not automatically have authority to deal with an adult child’s money, even if they opened the account, contributed to it or continue to provide all of the young person’s care.

In England and Wales, this has often meant applying to the Court of Protection for an appropriate order. For a family seeking access to a relatively modest fund, the time, paperwork and potential cost involved can feel disproportionate.

What is the Government proposing?

The Government plans to create a simpler route under which a suitable person, such as a parent or carer, could apply directly to the Child Trust Fund provider.

The Government estimates that between 63,000 and 126,000 young adults may have experienced difficulty accessing their funds. The average fund is said to be worth approximately £2,600.

The new route is intended to include proportionate safeguards and to follow the principles of the Mental Capacity Act 2005. This means that capacity must not simply be assumed from a diagnosis or disability. It must be considered in relation to the particular decisions involved. Any decision made on behalf of the young person must also be made in their best interests.

When will the Child Trust Fund rules change?

The rules have not changed yet.

The Government intends to amend the Financial Services and Markets Bill. If that amendment is approved by Parliament, the detailed process will be introduced through secondary legislation. No firm commencement date has yet been announced.

The outstanding details include:

• who will qualify as a suitable person;
• what evidence of lack of capacity will be required;
• what information the provider must obtain;
• whether limits will apply to withdrawals;
• how providers will monitor the use of the money; and
• what will happen if family members disagree.

Until those details are published, families should be cautious about delaying necessary financial planning.

What if the young person already has a deputy?

If a property and financial affairs deputy has already been appointed, the deputy should check the terms of the Court of Protection order.

A deputy may only make decisions within the authority given by the Court. Where the order covers the management of the young person’s property and finances, it may already provide the necessary authority to deal with the matured Child Trust Fund.

The Government has said that the Court of Protection will remain available as an alternative. It has not yet explained precisely how the new direct-access process will interact with existing deputyship orders.

Deputies should therefore continue to follow the existing order and keep a clear record of any decision to withdraw, transfer or spend the Child Trust Fund money.

Will families still need deputyship orders?

In some cases, yes.

The proposed process appears primarily intended to remove the need for a full court application where the Child Trust Fund is the main or only financial asset requiring management.

Deputyship may still be appropriate where the young person has:

• compensation or damages from a personal injury or clinical negligence claim;
• savings or investments outside the Child Trust Fund;
• property;
• substantial income or benefits requiring wider management;
• an inheritance or trust entitlement;
• ongoing financial decisions that cannot be dealt with through the proposed scheme; or
• family disagreement about who should manage their finances.

The proposed change should therefore be seen as an additional, proportionate route for certain Child Trust Funds, rather than a replacement for the wider protective jurisdiction of the Court of Protection.

Does the proposed change cover Junior ISAs?

Not at present. Similar problems can arise when a Junior ISA matures, and the account holder lacks capacity. The Government has confirmed that the announced reform will apply to Child Trust Funds and not Junior ISAs.

Families with a Junior ISA should continue to take advice under the existing rules.

What should families do now?

If a young person has, or may have, a Child Trust Fund, it is sensible to:

1. Locate the account. HM Revenue & Customs provides an online service to identify the Child Trust Fund provider.
2. Ask the provider about its current requirements. Do not assume that the Government announcement has already changed the provider’s process.
3. Consider the young person’s capacity. Capacity must be assessed in relation to the particular decisions required, rather than presumed from a condition or disability.
4. Check any existing deputyship order. The order may already give a deputy sufficient authority to manage the fund.
5. Consider the wider financial picture. If the young person has other assets or requires continuing financial management, a deputyship order may still be needed.
6. Keep the position under review. Further guidance will be required once the legislation and detailed regulations have been published.

How we can help

Our Vulnerable Clients team advises on mental capacity, deputyships and the management of finances for people who may be unable to make decisions themselves.

The Government’s announcement is a welcome development. However, until the detailed rules are published and brought into force, families and deputies should continue to work within the existing legal framework.

Contact our legal experts