The government has announced proposals that would let families seeking access to small funds belonging to loved ones who lack mental capacity to benefit from a new streamlined process.

Plans set out by ministers would allow withdrawals and payments from cash-based accounts, such as a Child Trust Fund (CTF) or a Junior ISA, up to £2,500 – without the need to get permission from the Court of Protection (CoP).

A CTF is a long-term, tax-free savings account for young people. The government launched the CTF scheme in 2005 to provide each eligible child born between 1 September 2002 and 2 January 2011 with a financial asset upon reaching adulthood. Parents and guardians would receive a voucher from the government to deposit into a CTF account, with the money belonging to the young person and only to be taken out when they turn 18.

Currently, if a person lacks mental capacity and as a result cannot manage their finances, a family member or guardian must apply to the CoP to manage these funds, to protect vulnerable people from fraud or abuse.

However, concerns have been raised that this can be a disproportionately costly and lengthy process to access relatively small amounts of money.

The government has therefore launched a consultation on a new system to ease the administrative burden on families, with the proposed scheme to be run by banks and building societies. The changes could include requiring medical evidence to certify the account holder lacks mental capacity to manage their own financial affairs, verification that funds will be used in the best interests of the account holder, and paying money directly to the provider of goods and services as opposed to the applicant.

Commenting on the scheme, Hargreaves Lansdown senior personal finance analyst, Sarah Coles, said there is “new hope” for families locked out of CTFs.

“Today’s proposals would offer a workable alternative, so that families could access the money in a few weeks, with a minimum of hassle,” Coles commented. “It will come as a huge relief to those who are struggling to get hold of money they need to improve their child’s life.

“The current process of applying to the CoP requires endless forms and waiting more than five months on average. It’s another needless stress and hassle for parents on top of everything else, which is one reason why so far only 28 people have gone through this rigmarole to access money in a CTF.”

Coles added that changes to the current system will require legislation and therefore won’t happen overnight, but highlighted that parents of children under the age of 18, who will lack mental capacity when they reach 18, can take a useful step to protect themselves in advance.

She added: “Under the current rules, if they have more than £2,500 in a matured CTF, they can’t access part of it, so they can’t get hold of any of it using the new system. If they move to a CTF provider who rolls it over into an ISA on maturity or switch to a Junior ISA which does the same thing, then when their child turns 18, they will be able to access the first £2,500 of the money under the new system.”

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