Children’s inheritance

bakerlou1009

My children have been left 25% of my late mother-in-law‘s estate, which comprises of a property and savings that amount to around £800,000. My kids are 13 and 16, and I’ve got no idea how to invest it for them until they’re 21 (that is what the will stipulates, although it does say that it can be accessed for educational purposes, with permission from the executors, who are me and her niece once removed). How do I invest it without me being liable for tax on the interest? And how do I keep it protected until they are 21?

Albermarle

This is not really my area, but I know that a lot depends on how exactly the will has been written. I think if there was just a general wish expressed that the money should not be made available at 21, that is not good enough and they can legally have it at 18. Better wait for someone more expert though.

You can put the money in a children's savings account in their name. Assuming they are not earning any money, they can earn up to £18750 in interest per tax year, without paying tax. However they will get access before 21.

Top children's savings accounts: 5.5% interest - MoneySavingExpert

sevenhills

bakerlou1009 said:

My children have been left 25% of my late mother-in-law‘s estate, which comprises of a property and savings that amount to around £800,000. My kids are 13 and 16, and I’ve got no idea how to invest it for them until they’re 21 (that is what the will stipulates, although it does say that it can be accessed for educational purposes, with permission from the executors, who are me and her niece once removed). How do I invest it without me being liable for tax on the interest? And how do I keep it protected until they are 21?

Are there solicitors involved with the estate being so large? You should speak to them. Proper advice will be expensive, is the intention to also sell the house, or just invest the money?

Keep_pedalling

With such large sums involved you really need to take professional advice. If, as is most often the case, the children have been left their share absolutely then the age 21 clause is not enforceable and is really just  a wish. If that is the case then you need to hold their shares in individual bare trusts which they will be responssable for once they reach 18 (16 in Scotland).

The wording of the will is critical here, unless it states that they only inherit if they survive until their 21st birthday (with alternative beneficiaries if they don’t) or that their share must be placed in a discretionary trust then you are looking at an absolute gift.

What to do with the money once the estate has been distributed is the other tricky thing. Assuming we are talking bare trust that can be accessed at 18 then because of their ages then it needs to be held in cash rather than equities.

xylophone

You need to establish whether or not the bequest has "indefeasibly vested" in your children.

You should take expert advice on this point.

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

If it has, that is to say if the bequest belongs to them unconditionally and absolutely
then it needs to be held in bare trust for each child and treated for tax purposes as indicated.

https://techzone.abrdn.com/public/iht-est-plan/Prac-guide-gifting-child-grand#:~:text=If held upon bare trust,provided allowances are not exceeded.

https://www.gov.uk/guidance/trusts-and-income-tax

If the trust is bare, then the beneficiary has the legal right to access and control at age 18.

https://www.lawsociety.org.uk/public/for-public-visitors/common-legal-issues/trusts#:~:text=Assets in a bare trust,go directly to the beneficiary.

And note

https://www.gov.uk/trusts-taxes/registering-a-trust

bakerlou1009

sevenhills said:

bakerlou1009 said:

My children have been left 25% of my late mother-in-law‘s estate, which comprises of a property and savings that amount to around £800,000. My kids are 13 and 16, and I’ve got no idea how to invest it for them until they’re 21 (that is what the will stipulates, although it does say that it can be accessed for educational purposes, with permission from the executors, who are me and her niece once removed). How do I invest it without me being liable for tax on the interest? And how do I keep it protected until they are 21?

Are there solicitors involved with the estate being so large? You should speak to them. Proper advice will be expensive, is the intention to also sell the house, or just invest the money?

No solicitors involved. I’m currently selling the property. Am probably just going to buy bonds in national savings and investments for my part. I invested 150 K a couple of years ago in some sort of Santander portfolio and it’s doing terribly so I’ve had my fingers burnt with that.

bakerlou1009

Keep_pedalling said:

With such large sums involved you really need to take professional advice. If, as is most often the case, the children have been left their share absolutely then the age 21 clause is not enforceable and is really just  a wish. If that is the case then you need to hold their shares in individual bare trusts which they will be responssable for once they reach 18 (16 in Scotland).

The wording of the will is critical here, unless it states that they only inherit if they survive until their 21st birthday (with alternative beneficiaries if they don’t) or that their share must be placed in a discretionary trust then you are looking at an absolute gift.

What to do with the money once the estate has been distributed is the other tricky thing. Assuming we are talking bare trust that can be accessed at 18 then because of their ages then it needs to be held in cash rather than equities.

It is subject to them reaching the age of 21 but it does allow payments as an income from the capital once they are 18 for  maintenance education or benefit purposes with absolute discretion from the trustees

LHW99

I suppose a 5 year fixed rate bond that doesn't allow withdrawals might be an option at least for the 16 year old, as it would be a cash account, which they could take possession of at 18, but not access till 21?

bakerlou1009

LHW99 said:

I suppose a 5 year fixed rate bond that doesn't allow withdrawals might be an option at least for the 16 year old, as it would be a cash account, which they could take possession of at 18, but not access till 21?

Great idea, but they might need to access some income from the capital before they reach 21 if they go to university

wmb194

bakerlou1009 said:

LHW99 said:

I suppose a 5 year fixed rate bond that doesn't allow withdrawals might be an option at least for the 16 year old, as it would be a cash account, which they could take possession of at 18, but not access till 21?

Great idea, but they might need to access some income from the capital before they reach 21 if they go to university

Many fixed rate savings bonds allow the interest to be paid away either monthly or annually.

artyboy

bakerlou1009 said:

Keep_pedalling said:

With such large sums involved you really need to take professional advice. If, as is most often the case, the children have been left their share absolutely then the age 21 clause is not enforceable and is really just  a wish. If that is the case then you need to hold their shares in individual bare trusts which they will be responssable for once they reach 18 (16 in Scotland).

The wording of the will is critical here, unless it states that they only inherit if they survive until their 21st birthday (with alternative beneficiaries if they don’t) or that their share must be placed in a discretionary trust then you are looking at an absolute gift.

What to do with the money once the estate has been distributed is the other tricky thing. Assuming we are talking bare trust that can be accessed at 18 then because of their ages then it needs to be held in cash rather than equities.

It is subject to them reaching the age of 21 but it does allow payments as an income from the capital once they are 18 for  maintenance education or benefit purposes with absolute discretion from the trustees

But to Xylophone's point above, unless the will is worded in a very specific way, any restrictions to full access beyond age 18 may be legally meaningless. Given you've said there are no solicitors involved, can you be certain that they are not entitled to the full amount when they reach 18 years old?