Tens of millions of pounds belonging to about 80,000 young people without the capacity to make financial decisions could be locked in trust funds.

What are Child Trust Funds (CTF)?

The Government issued every eligible child born between 1st September 2002 and 2nd January 2011 with a voucher to invest in a CTF. Even if the child’s parents did not open a CTF account for them, the Government opened one on their behalf. The CFTs were introduced to boost saving rates and give all children a pot of money when they turned 18. The idea was that the Government would get the ball rolling with savings and then loved ones could add to the CTF over the years to increase the lump sum due to the child when they turned 18. The scheme was scrapped in 2011 and replaced by Junior ISAs, but by then there were already hundreds of thousands of pounds locked away in CTFs. In 2020 the first of the children started to turn 18 and many wanted to access their CTFs. Sadly, this is where the problems began. It is estimated that there are 5.3 million open CFT accounts yet, over 400,000 18–21-year-olds have not claimed their child trust funds, worth on average £2,000. 

When and how are the funds accessed?

To access their CTF, ‘the child,’ upon turning 18, needs to set up another bank account in their own name for the funds to be transferred to. For many, this is straightforward and results in them having a much-appreciated sum of money to set them up in life. 

Why are they in the news now?

Some of these ‘children’ are now adults who lack the capacity to manage their property and financial affairs. These young people may be unable to open a bank account in their own name and their parent or guardian cannot do it for them. This is what families are facing when trying to access their child’s CTF, and such family members are often the same people who paid funds into the CTF. The only solution in this case 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. It involves mountains of paperwork, doctor’s reports, and often legal representation at court. Many families are now faced with a massive headache to access their child’s money. It is estimated that by 2029, the year in which all these accounts will have matured, there could be up to £210m locked away in Child Trust Funds that families have been unable to access.

What is a Deputyship order?

If a person lacks the capacity to manage their property and financial affairs, then they cannot open a bank account and require a Deputy to manage their affairs. However, being a Deputy is not a role to be taken lightly. Notwithstanding the complex and time-consuming process to become one, once appointed, a Deputy is subject to onerous yearly reporting and regulatory framework. They must account for all spending and money received. If they do not, the Office of the Public Guardian who regulates Deputies can investigate them and even remove them if they feel a Deputy does not meet their standards. Where a person lacks the capacity to deal with their financial affairs this ensures checks and safeguards are in place against financial abuse. It is only by way of a further Court application that a person may cease to be a Deputy.

So how did we get here and why was this situation not foreseen by legislators?

The complications arose with the introduction of the Mental Capacity Act 2005 (MCA). The MCA was a ground-breaking piece of legislation that sought to enshrine into law decades of uncertain and mismatched case law surrounding people who lack mental capacity. Prior to the MCA, there was a sort of one-size-fits-all approach to mental capacity and often the feelings and wishes of the person who lacks capacity were not considered just because they lack the capacity to make high level decisions. The MCA focuses on the concept of achieving best interest outcomes in the least restrictive way possible whilst also safeguarding the welfare of those who lack capacity.

Why is the current system to access a CTF not fit for purpose?

This can be very upsetting for families who have managed their child’s benefits for their whole life as Appointees (a more informal appointment by the DWP). Many feel that they are no longer trusted to look after their loved one and this can place even more stress upon families already struggling to care for a disabled child.

The problem is that there are very good reasons that being a Deputy is such an onerous responsibility. A person who lacks capacity is vulnerable to financial abuse and we have seen a significant increase in abuse of vulnerable people, particularly during the pandemic when individuals were even more isolated than before. The yearly reporting and regulations are designed to ensure there is no mismanagement of the person’s finances whether intentional or not. Deputies are also required to take out an insurance policy to protect the funds they are managing on behalf of the person who lacks capacity. This is costly and the duties continue even after the CTF monies have been used.

In some cases, these CTFs are only holding a few thousand pounds that may well be used for a one-off purchase or over a relatively short period of time and in these cases, it might not be necessary or appropriate for a Deputy to be appointed for life to manage such a relatively small sum of money. Obviously, when we are talking about tens of thousands of pounds that could last for many years a Deputyship is vital. The idea that families must jump through unnecessary hoops is not in the spirit of the MCA, which seeks to achieve the best outcome for the person who lacks capacity in the least restrictive way possible.

What is needed is a separate pathway for families to access this money without the need to become the child’s Deputy when there is no other reason for the child to have one. Hopefully, the government will soon see the light on this and introduce much needed reforms but until then families of a person who lacks capacity have no choice but to apply to become their deputy if they wish to access a CTF.

How can our private client team help?

If you think you need legal advice in relation to mental capacity, the Child Trust Funds or Deputyship then contact our Private Client team who can talk you through the processes and provide you with tailored legal advice for you and your loved one. Call 0330 0945 500, email info@nevesllp.co.uk or complete our Contact Form and we'll get back to you.