Money left to under-18s in will

thegreenone

An aside.  I take it that your sister has no intention to have children?  

Keep_pedalling

thegreenone said:

An aside.  I take it that your sister has no intention to have children?  

Or the OP having any more children. This is a very poorly drafted will. 

MBenn80

Thanks all. Some very good advice here.

Just to add, my sister does not have children and is highly unlikely to in the future, and I think we're done as well.

stuhse

I'm not an expert, but you might be able to simplify things with a deed of variation if all beneficiaries are in agreement. 


If so just put the money in their names now...don't tell them until they are 18. ? Then tell them your mums wishes that they do not access it until they are 21 ?   Not sure if any of this is possible, 

MBenn80

stuhse said:

I'm not an expert, but you might be able to simplify things with a deed of variation if all beneficiaries are in agreement. 


If so just put the money in their names now...don't tell them until they are 18. ? Then tell them your mums wishes that they do not access it until they are 21 ?   Not sure if any of this is possible, 

I do wonder if a deed of variation would simplify things, though definitely one for the solicitor.

MBenn80

poseidon1 said:

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.


:

Thanks for that. Quite in depth a d some good advice about life company investment bonds. 

One question about tax. My understanding is that this would be a discretionary trust, and as such income would be taxed at 8.75% of dividend income and 20% of other income, though this could be reclaimed if below annual amount.

Also, the CGT has an annual allowance of £3k. Is this yearly?

Where does the 45% figure come from?

Spendless

I don't think you can do a DOV if the beneficiaries are under 18. 

I have to say what an absolute nightmare this sounds, made by someone whose perhaps real wish was purely to let Grandkids have it when they were a little older than as soon as they legally became adults. 

Was it made by a solicitor btw?  

MBenn80

MBenn80 said:

poseidon1 said:

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.


:

Thanks for that. Quite in depth a d some good advice about life company investment bonds. 

One question about tax. My understanding is that this would be a discretionary trust, and as such income would be taxed at 8.75% of dividend income and 20% of other income, though this could be reclaimed if below annual amount.

Also, the CGT has an annual allowance of £3k. Is this yearly?

Where does the 45% figure come from?

Actually, scrub that. That's the tax rate for income over £1k , isn't it?

MBenn80

Spendless said:

I don't think you can do a DOV if the beneficiaries are under 18. 

I have to say what an absolute nightmare this sounds, made by someone whose perhaps real wish was purely to let Grandkids have it when they were a little older than as soon as they legally became adults. 

Was it made by a solicitor btw?  

No, not a solicitor. But it was a professional will writer.

It looks like there are fixes though and I am quite a fan of paperwork.

Will definitely take this to a solicitor though and may be giving someone a bad Google review.

pjs493

Keep_pedalling said:

thegreenone said:

An aside.  I take it that your sister has no intention to have children?  

Or the OP having any more children. This is a very poorly drafted will. 

When I recently wrote a new Will following the death of my husband, my disaster clause (ie me and my children dying in a plane crash or similar) leaves everything to my sister’s children. Initially the solicitor wanted to name them, but I pointed out that while she’s unlikely to have more children, she’s still of childbearing age so naming my niblings rather than wording it as the children of my sister, could potentially disinherit a yet to be born nibling. 

I was particularly conscious of getting this right because the mirror Will I had written with my husband years ago left everything to our niblings in our disaster clause. Our intention was that everything would be divided between my sister’s children and my brother-in-law’s children if my husband, children, and I died in a place crash. We only later learned that each of our Wills only made provision for our blood niblings, not niblings-in-law. So, for example, my husband’s death in service benefit would have only gone to the children from his brother, not my sister’s children as well, which is what we actually wanted. We didn’t realise at the time that it meant blood niblings only. 

My children were named because following the death of my husband I have no plans to ever remarry or enter into another relationship so won’t have any more children (sadly as we were planning on another at the time of his sudden death).