Advice for Nephew's Inheritance

MarkB

My Dad passed away and I'm close to completing all of the estate administration.  I have 2 x Nephew's that are due ~£28,000 each from the estate, in 2 different ways (see below) and I'm after some advice on what the most appropriate options are for them:

Nephew 1:  Is 21, still living at home, in full time employment, did not go to University, no debts.  WIll get the full amount in one go.

Nephew 2:  Is 17, still living at home, college & apprentiship, no debts.  Will get 25% when he turns 18 next April and the other 75% when he turns 21 in almost 4 years time.

So questions are for Nephew 1, what are his best options for making the most of the cash.  He's been saving up for a house, so this would likely go into that fund, but probably not in a position to purchase for ~2 years or more.

For Nephew 2, what are the best options for me to manage the funds (on behalf of the estate) until they are due to be paid to him?

Thanks,

Mark

Albermarle

For Nephew 1 the first port of call is a Lifetime ISA , which the government will top as ling as he uses it as for buying a first time house .https://www.moneysavingexpert.com/savings/lifetime-isas/
So £4K max per tax year . So £4K this year and the following couple of years . The rest in a safe savings account(s) Over just two or three years not safe to invest it in anything .

Again even for Nephew 2 , four years is too short a time frame for investing . So a four year fixed rate savings account could be the best bet.
https://moneyfacts.co.uk/savings-accounts/

Malthusian

Nephew 2:  Is 17, still living at home, college & apprentiship, no debts.  Will get 25% when he turns 18 next April and the other 75% when he turns 21 in almost 4 years time.

If the money is "indefeasibly invested" in Neph2 (i.e. that £28k has been specifically left to him, no other potential beneficiaries), he will be entitled to the whole lot at 18, assuming English / Welsh law applies (Saunders v Vautier). The bit about when he can spend 75% of his own money is legally meaningless.

Assuming the above, the trustees should hold Neph2's inheritance in an easy access account or a fixed rate rate account that matures before his 18th. If Neph2 has indicated that he wants the money to be invested with a longer timeframe in mind, the trustees could take that into account. If he hasn't, the trustees need to ensure the capital is available to him when he wants it and is entitled to it, i.e. from 18. A four year fixed rate account would not be suitable as nothing suggests it is in the beneficiary's interest to tie his money up for three years after he becomes entitled to withdraw it.

xylophone

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

If the legacy has "indefeasibly vested" in your nephew (ie it has been left on the basis "when" he turns18/21 and not "if" he reaches 18/21, then the money must be held in Bare Trust for him.

The beneficiary of a Bare Trust has the absolute legal right to call for access to and control of Trust assets at the age of 18 (16 in Scotland).

It might be possible for you to open an account for your nephew on this basis with eg Skipton Building Society.

https://www.skipton.co.uk/savings/childrens/childrens-saver

MarkB

Thanks all.  The will states:

"I DIRECT in the event of either of my grandsons (Nephew1) or (Nephew2) are under the age of 21 at the date of my death then they will shall receive 25% of their entitlement at the age of 18 years and the remaining 75% when they attain the age of 21 years."

Note that "they will shall receive" is not a typo on my part - that is what is written in the will!!

Malthusian

That snippet suggests Neph2 is entitled to 100% of the capital at 18. The money will also be taxable as theirs (albeit not many 17 year olds will have a tax liability on the yield from £28k). None of that paragraph prevents the beneficiaries from having an indefeasible interest.

It is up to the Trustees (his parents? you?) whether they hand over 100% of the money at 18 or keep it in bare trust until Neph2 asks for it.

Neph1 presumably has his head screwed on if he's potentially buying a house at 23.

Emmia

Albermarle said:

For Nephew 1 the first port of call is a Lifetime ISA , which the government will top as ling as he uses it as for buying a first time house .https://www.moneysavingexpert.com/savings/lifetime-isas/
So £4K max per tax year . So £4K this year and the following couple of years . The rest in a safe savings account(s) Over just two or three years not safe to invest it in anything .

Again even for Nephew 2 , four years is too short a time frame for investing . So a four year fixed rate savings account could be the best bet.
https://moneyfacts.co.uk/savings-accounts/

He could look at premium bonds as a safe, but easy access way of holding the extra cash - always the possibility of a prize or two with a good size holding as well.

MarkB

Malthusian said:

That snippet suggests Neph2 is entitled to 100% of the capital at 18. The money will also be taxable as theirs (albeit not many 17 year olds will have a tax liability on the yield from £28k). None of that paragraph prevents the beneficiaries from having an indefeasible interest.

It is up to the Trustees (his parents? you?) whether they hand over 100% of the money at 18 or keep it in bare trust until Neph2 asks for it.

Neph1 presumably has his head screwed on if he's potentially buying a house at 23.

Thanks.  I'm the sole executor of the Estate (I have a Sister (Mum to my 2 x Nephews) - she gets some cash too, but she's not an executor).

Sounds like irrespective of what my Dad's intention was in the will, I legally need to give Nephew2 the full amount on his 18th birthday.