Money left to under-18s in will

MBenn80

I need some advice.

My mother recently passed away. Her will names me and my sister as the executors of the will as well as trustees. In the will, my mother has left £25'000 to be given to each of my children (currently aged 5 and 2) when they reach 21.

I'm not sure exactly what my next steps should be. Do I need to set up a trust fund or is the money just held by me and my sister until their 21st birthday? Also, can I invest the money in stocks and shares? 

Any advice would be much appreciated.

Spendless

I'm sure someone will be along you can explain better but I *think* unless a specific trust was set up, you can't prevent the kids from inheriting at 18 (16 in Scotland).

Can you explain more about the trustees as it might help with replies. 

MBenn80

I'm not sure what more information you'd need. I'm a trustee as is my sister.

msb1234

This might help
https://www.thegazette.co.uk/all-notices/content/103941

Keep_pedalling

You need to set up a trust account for each of them to hold the money. If, as is likely; they have been left the money absolutely then this will need to be a bare trust, which they will be entitled to access when they are 18.

What is the actual wording of the will in regards to these bequests (redact any personal info)? 

Marcon

MBenn80 said:

I need some advice.

My mother recently passed away. Her will names me and my sister as the executors of the will as well as trustees. In the will, my mother has left £25'000 to be given to each of my children (currently aged 5 and 2) when they reach 21.

I'm not sure exactly what my next steps should be. Do I need to set up a trust fund or is the money just held by me and my sister until their 21st birthday? Also, can I invest the money in stocks and shares? 

Any advice would be much appreciated.

The questions you've asked suggest that your mother didn't do more than leave the bequest of £25,000 to each of your children 'to be given to them when they reach 21'. if that's the case then, as others have already pointed out, the children can claim when they reach the age of 18 (16 in Scotland).

Start by reading https://www.gov.uk/trusts-taxes and then decide if you need professional advice.

MBenn80

The wording is a little bit vague, but it is set out as follows:

I give £25000 free of any inheritance tax to be gifted each to my grandchild X and my grandchild Y if they should reach the age of 21.

So, a condition has been set out in the will.

My understanding is that a bare trust allows them to claim the money at 18, but this is a different type of trust as a condition is set out. The issue is that this may have legal implications.

I'm also unclear as to whether a trust is needed at all and whether my sister and I could just hold the money till then.

RAS

Others will comment if n the precise wording as this includes a survivorship requirement.

But the money needs to be held in separate accounts in your children's names, with yourself and sibling . Otherwise any income becomes part of your taxable income, allowance for savings with any mean-tested situation, and potentially at risk if you divorce or die before they reach majority.

JISAs are often recommended as they become accessible when the child reaches the age of 18 years

Keep_pedalling

MBenn80 said:

The wording is a little bit vague, but it is set out as follows:

I give £25000 free of any inheritance tax to be gifted each to my grandchild X and my grandchild Y if they should reach the age of 21.

So, a condition has been set out in the will.

My understanding is that a bare trust allows them to claim the money at 18, but this is a different type of trust as a condition is set out. The issue is that this may have legal implications.

I'm also unclear as to whether a trust is needed at all and whether my sister and I could just hold the money till then.

Does the will say what should happen if either of them dies before the age of 21? 

This does look like a contingent clause which make things more complex for you. The money has to be held in trust but it won’t be a bare trust. 

https://www.collegewillwriting.co.uk/wp-content/uploads/2019/10/Effect-of-Age-Conditions.pdf

poseidon1

Please note I was somewhat hesitant in posting this response to your query, especially given the modest sums in question. However Keep_ pedalling has supplied you with a link to the College  of Will Writing dissertation  on the subject of testamentary gifts to minors so hopefully what follows helps place your predicament as trustees in this context. 



The gift is contingent on each attaining age 21. Age 18 is irrelevant in this regard (therefore no bare trust ) , since if one or other  beneficiary fails to reach that age their gift fails and either accrues to the survivor or falls back into estate residue depending on any additional wording of the will. One would have hoped to have additional trustees' powers outlined in the will to further clarify your options during the contingent survival period but I suspect a complex trust was never intended in the 1st place.

This contingent gift therefore forms a trust, which on its face, each beneficiary has no entitlement either to income or capital of their trust funds until attaining the requisite age ( this is by operation of trust law ). This is unfortunate in terms of the tax treatment of income and  gains during the respective trust periods for which professional advice will be required. A particular point to explore is whether, inadvertently, these trust funds have been exposed to 10 year iht reporting obligations, and indeed may fall to be registered on HMRC' s trust register. 

However, since it is fairly certain that your mother would not have intended such complexities arising on what she would have thought was a relatively  simply gift to her grandchildren ( given the modest amounts) , one therefore tends to conclude a degree of bad drafting of the will may have occurred, which if drafted by a solicitor leaves a question mark as to whether they are the best source from which to seek further guidance.
 That said if a solicitor was in error, in my view the firm are duty bound to provide advice for no charge even if this means them having to refer the matter to an external specialist.

If this was not a solicitor drafted document, this situation highlights the pitfalls of self drafting or allowing a non specialist to devise wording on one's behalf.

Irritatingly much of the  above could have been avoided if the will had stated:

' I give £25,000  free of inheritance tax to each of grandchildren x and y at age 21'  - thereby removing the  survival contingency and changing the tax position of income arising .

alternatively 

'I give £25,000 free of inheritance tax to each of my grandchildren x and y absolutely '   - this would have establish a bare trust at age 18, a much more straight forward outcome!


As to investment of the trust funds, these trusts appear to be ideal candidates for the use of  life company investment bonds since these products produce no taxable income or chargeable gains during the investment accumulation period, and can be passed to the beneficiaries at their vesting age (21).
The beneficiaries can then use their personal tax circumstances to mitigate or avoid  income tax on the accumulated bond gains. However, there is the vexed question as to who would be the life assured since these are policies of assurance, so a question for an IFA. 

What is important to note however, if the trustees choose instead to invest in conventional income producing assets such income is likely  taxable at the trust rate of 45% , whilst any realised trust gains, only attract 50% of the normal cgt allowance. Clearly, an undesirable administratively burdensome and costly obligation on the trustees.


:

doodling

Hi,

RAS said:

Others will comment   the precise wording as this includes a survivorship requirement.

But the money needs to be held in separate accounts in your children's names, with yourself and sibling . Otherwise any income becomes part of your taxable income, allowance for savings with any mean-tested situation, and potentially at risk if you divorce or die before they reach majority.

JISAs are often recommended as they become accessible when the child reaches the age of 18 years

Whilst that is all good advice (and I recommend it is followed with an exception, see below) it is not mandatory. 

A trustee legally owns the money they hold in trust for someone else (that is almost the definition of a trust)  If income from it was taxable or subject to the effects of a divorce then the name under which it is held is irrelevant.  What matters is that the legal and beneficial ownership of the money is documented so that when the trustee needs to compile a tax return (or respond to a divorce lawyer) they can correctly separate their own money from money they hold in trust.  In theory the trustee could just stick all the money they hold, both their own and that which they hold in trust into one bank account and keep meticulous records, in practise it is a lot easier to have separate accounts and let banks do that.  Trustees also need to be aware that some financial institutions (and occasionally the law in the case of most ISAs) prohibit the use of certain accounts to hold money held in trust.

The exception to the good advice in the post quoted is that in this case, the OP needs to confirm the nature of the trust before irrevocably giving it to the beneficiaries (which is effectively what placing it into a JISA or putting into an account under the children’s names would do).  If the will is such that the money goes somewhere other than the beneficiary's heirs if the beneficiary fails to reach 21 then putting it into the children's names is a very bad idea and it needs to be held in trust under the trustees' legal ownership until the beneficiary has lived to the age of 21 (or not).