Children's Inheritance from Grandparents

xylophone

I have been given the money to hold, which I did not expect - it is currently in standard bank accounts in my name as I am not sure what to do/what I can do with it.

It should not be  held in your personal account.

A Trust Account is needed.

https://forums.moneysavingexpert.com/discussion/comment/81218434/#Comment_81218434

And see links in my post above.

Keep_pedalling

Although the capital needs to be held in trust any income may be payable to your children which would simplify things for the trustees. That is certainly the case with 18-25 trusts which would be used if the testator was a parent.

poseidon1

Fizzylime11 said:

Hi,

Hoping somebody can help me with an issue I am having with my adult children's inheritance from their grandmother (ages 19 & 22)

The will stipulates that it is to be held on trust until 25.

I have been given the money to hold, which I did not expect - it is currently in standard bank accounts in my name as I am not sure what to do/what I can do with it.
The solicitor said ideally it should go into accounts with an added designation to make it clear that the money is not mine, but that is not proving an easy thing.

I don't really want the money in my account for a number of reasons - it appears to be mine, interest will be less due to me paying more tax etc.

I did ask if I can put into a LISA/ISA in their own names - they said I can but it is to be appreciated that they cannot have unfettered access.
This would then mean though that it is 'theirs' which then confuses me as it is not then held on trust, so still not 100% sure I can do this.
The solicitor in my opinion has not really explained this to me properly and I just don't want to do anything with the money that I shouldn't.

My eldest is currently in Australia so he could not put money into these anyway.....

They have both inherited £65,000 and I just want to put it in accounts to gain as much interest as possible in the interim.

Sorry for long post!!

Sadly due to the solicitor not properly explaining to your mother  the tax implications of the contingent interest trust established by that clause in the will, you have been lumbered with a complex trust  with a complex tax regime. 

 My strong suspicion however is the solicitor did not know what they doing when they inserted that clause ( presumably at your mother's behest) and this is now evident from the wholly inadequate advice they have been trying to give you as to your next course of action.

TAX

So dealing with tax. For income tax purposes you have in essence an  ( accidental) 18 to 25 trust. Because of the contingency ( capital to vest on survival  at age 25) any income generated is liable to income tax at the trustees rate of 45%. This is because the children cannot have an absolute right to the underlying income of their contingent share ( as it arises) precisely because of the contingency!

What this means to you as trustee is you have an obligation to register  this Trust with the HMRC TRS service as indicated by xylophone.  Once registered, any deposit interest generated on the trust account is reportable on  trust tax return SA900 which unfortunately is not available for you to complete online  you will have to run off pdf copies to complete the old fashion way.

To be noted that the tax charged at 45% is potentially recoverable  ( in whole or in part ) by each beneficiary when you pay out their capital  ( at age 25 ) along with their 50% share of the accumulated net income. However you would have to supply them with a trustee tax deduction certificate for them to formally submit to hmrc for a tax refund, depending on their individual marginal tax rates at that time.

TRUSTEE ACCOUNTS

You will see that xylophone has provided a link to another thread related to accounts available to trustees ( mainstream banks and most online deposit takers will not be interested in providing you with a high interest trustee deposit  account). However you will see from the building societies listed that their rates are pretty poor  ( 2.45% seems to be the highest ) and even less appealing where you are required to pay 45% income tax thereon. If you are able to get a professional referral to Cater Allen bank they are currently offering trustees 1 year fixed term deposits at 4% but still not brilliant where 45% tax is in point.

AN ALTERNATIVE STRATEGY?

However, if I were in your position, and with a view to obtaining an optimal tax free but safe investment returns for your sons, I  would seriously consider investing in very low coupon medium dated government gilt/s to give them access to  tax free capital gains  at the gilt maturity date. 

As an example Treasury 0.25%  stock 2031 can currently be purchased at around 76p for every £1 face value. So  investing the sum of say £130,000 would buy approximately £171,000  of the gilt which would mature in 2031 with an appealing  £41,000 tax free profit.

 Income is still generated albeit at 0.25%. However, trusts liable to the 45% tax rate benefit from a £500 allowance. Any income received below the allowance is not taxable. The  £171,000 gilt  at 0.25% generates under £500 of annual interest.

It would be nice if you could pursue this opportunity on a DIY basis via one or other of the retail investment platforms such as Hargreaves Lansdown or AJ Bell but both limit their services to Bare Trusts for minors, which is not the case here.

So if you wanted to explore this option further you would need to engage the services of a wealth manager able to set up a suitable  gilt portfolio on the trust's behalf. As a further benefit such firms should be more familiar with the complexities of trusts due to their diverse high net worth client base.

See links to potential firms you could talk to below (this is  not an endorsement of anyone of them).

https://www.canaccordgenuity.com/wealth-management-uk/investment-management/fixed-income-investing/

https://www.wcgplc.co.uk/MarketNews/News/510

https://killik.com/what-we-offer/investment-management/specialist-investment-services/gilt-saver-service/

Finally, you should rightly be cautious of advice/guidance from anonymous forums such as this. By the same token it would seem pointless returning to the solicitor with this new insight into your predicament given that the firm are struggling to understand the implications of the clause they drafted in your mothers will. 

You could therefore consider approaching a STEP qualified solicitor for an alternative opinion and sound out the veracity of my alternative strategy. STEP is the Society of Trust and Estate Practitioners and represent the 'gold standard' in the area of trust and estate advisory services. Link to STEP directory below.

https://www.step.org/about-step/public

You are not the first trustee to be caught out by the complexities of 'accidental' contingent trusts and sadly due to poor competency of many solicitors in this sector, you wont be the last.

Olinda99

An excellent post which I am sure the op will find very helpful

However I think you might be rushing to judgement that the solicitor didn't explain to her mother the tax implications eetcwhen setting up thecwill.

He may very well have done that at length but maybe the mother insisted that the 'children didn't get the money until they are 25'

silvercar

Real world examples that are going to upset some users.

My grandmother left a small amount to my children (her only great grandchildren) with the instruction that they should not receive it until the age of 25. They were only 7 & 11 at the time. We put it in a child savings account and only told them about it when they reached 25. If they hadn't survived until 25 I would have returned the money to the person who inherited the residual of the estate (though he died 4 years later, I'm not sure in honesty what I would have done after that). The amount was too small to do anything else, plus who would be around to take action if the unfortunate death occurred? 

My children inherited about £50k from their grandfather, again the will stated that they shouldn't receive the money until they were 21, with the stipulation that if any didn't survive their share should go to the other grandchildren. At the time the grandchildren were 24, 20,15 & 11. The elder two got their money straight away, the younger 2 had savings accounts opened for them - not sure if they were told about the money. I suppose if one or more didn't survive, a cousin could claim - though I doubt they would in the circumstances.

Sometimes it makes more sense to be pragmatic, even if you are only following the wishes rather than the letter. I'm sure if it was explained that a savings account can be opened or a trust set up with high costs and hassle they would have chosen the former. 

Keep_pedalling

The other potencial issue with these sort of legacies is that if the beneficiary died before their 25th birthday and had married and/or had children, their dependants would get none of it.

It is very difficult to actually enforce the age when someone can inherit without causing all sorts of other consequences which is why very few people do it.

IanManc

poseidon1 said:

Fizzylime11 said:

Hi,

Hoping somebody can help me with an issue I am having with my adult children's inheritance from their grandmother (ages 19 & 22)

The will stipulates that it is to be held on trust until 25.

I have been given the money to hold, which I did not expect - it is currently in standard bank accounts in my name as I am not sure what to do/what I can do with it.
The solicitor said ideally it should go into accounts with an added designation to make it clear that the money is not mine, but that is not proving an easy thing.

I don't really want the money in my account for a number of reasons - it appears to be mine, interest will be less due to me paying more tax etc.

I did ask if I can put into a LISA/ISA in their own names - they said I can but it is to be appreciated that they cannot have unfettered access.
This would then mean though that it is 'theirs' which then confuses me as it is not then held on trust, so still not 100% sure I can do this.
The solicitor in my opinion has not really explained this to me properly and I just don't want to do anything with the money that I shouldn't.

My eldest is currently in Australia so he could not put money into these anyway.....

They have both inherited £65,000 and I just want to put it in accounts to gain as much interest as possible in the interim.

Sorry for long post!!

Sadly due to the solicitor not properly explaining to your mother  the tax implications of the contingent interest trust established by that clause in the will, you have been lumbered with a complex trust  with a complex tax regime. 

 My strong suspicion however is the solicitor did not know what they doing when they inserted that clause ( presumably at your mother's behest) and this is now evident from the wholly inadequate advice they have been trying to give you as to your next course of action.

.............

You could therefore consider approaching a STEP qualified solicitor for an alternative opinion and sound out the veracity of my alternative strategy. STEP is the Society of Trust and Estate Practitioners and represent the 'gold standard' in the area of trust and estate advisory services. Link to STEP directory below.

https://www.step.org/about-step/public

You are not the first trustee to be caught out by the complexities of 'accidental' contingent trusts and sadly due to poor competency of many solicitors in this sector, you wont be the last.

You have no idea what the solicitor said to the OP's mother.

Your "strong suspicion" is informed by your prejudices and not by any evidence.

You have no insight into the competence or otherwise of this or any other solicitor.

Ironically, despite your ad hominem attacks on solicitors, you then advise that the OP approaches ....... a solicitor.

The reality is that wills and probate solicitors are often faced with testators who insist that children or grandchildren don't get money until a certain age. Many can be persuaded that the mechanisms for ensuring this have unintended consequences and can be talked out of their view. 

However some - insistent clients - will not change their mind and the only things you can do is follow their instructions while marking the file to show the advice given but that the client was insistent; or refuse to write the will and show them the door. 

If the OP's mother died less than two years ago and all the beneficiaries are agreeable I'd suggest that the OP considers a Deed of Variation to get rid of the age stipulation and let the grandchildren have the money now.

https://www.gov.uk/alter-a-will-after-a-death

xylophone

You have no idea what the solicitor said to the OP's mother.

This is true but from what the OP stated

The solicitor said ideally it should go into accounts with an added designation to make it clear that the money is not mine, 

he did not appear to have a very firm grasp of procedure.

Nor (it seems) was he able to explain the detail of what the contingency involved in terms of administration.

I have had some personal experience of Trusts and of a couple of solicitors who advised thereon - both were members of STEP but one 

of them was, shall we say, rather more finely tuned than the other......

If the OP's mother died less than two years ago and all the beneficiaries are agreeable I'd suggest that the OP considers a Deed of Variation to get rid of the age stipulation and let the grandchildren have the money now.

Are any of the beneficiaries minors? If so, this could prove complicated.  And would any other adult beneficiaries be agreeable (note that 

the money returns to the estate if the contingency is not met, presumably to be distributed as indicated in the original will)?

It should also be noted that  the OP said

I actually agree with the age tbh, they aren't the best with money!!!

poseidon1

IanManc said:

poseidon1 said:

Fizzylime11 said:

Hi,

Hoping somebody can help me with an issue I am having with my adult children's inheritance from their grandmother (ages 19 & 22)

The will stipulates that it is to be held on trust until 25.

I have been given the money to hold, which I did not expect - it is currently in standard bank accounts in my name as I am not sure what to do/what I can do with it.
The solicitor said ideally it should go into accounts with an added designation to make it clear that the money is not mine, but that is not proving an easy thing.

I don't really want the money in my account for a number of reasons - it appears to be mine, interest will be less due to me paying more tax etc.

I did ask if I can put into a LISA/ISA in their own names - they said I can but it is to be appreciated that they cannot have unfettered access.
This would then mean though that it is 'theirs' which then confuses me as it is not then held on trust, so still not 100% sure I can do this.
The solicitor in my opinion has not really explained this to me properly and I just don't want to do anything with the money that I shouldn't.

My eldest is currently in Australia so he could not put money into these anyway.....

They have both inherited £65,000 and I just want to put it in accounts to gain as much interest as possible in the interim.

Sorry for long post!!

Sadly due to the solicitor not properly explaining to your mother  the tax implications of the contingent interest trust established by that clause in the will, you have been lumbered with a complex trust  with a complex tax regime. 

 My strong suspicion however is the solicitor did not know what they doing when they inserted that clause ( presumably at your mother's behest) and this is now evident from the wholly inadequate advice they have been trying to give you as to your next course of action.

.............

You could therefore consider approaching a STEP qualified solicitor for an alternative opinion and sound out the veracity of my alternative strategy. STEP is the Society of Trust and Estate Practitioners and represent the 'gold standard' in the area of trust and estate advisory services. Link to STEP directory below.

https://www.step.org/about-step/public

You are not the first trustee to be caught out by the complexities of 'accidental' contingent trusts and sadly due to poor competency of many solicitors in this sector, you wont be the last.

You have no idea what the solicitor said to the OP's mother.

Your "strong suspicion" is informed by your prejudices and not by any evidence.

You have no insight into the competence or otherwise of this or any other solicitor.

Ironically, despite your ad hominem attacks on solicitors, you then advise that the OP approaches ....... a solicitor.

The reality is that wills and probate solicitors are often faced with testators who insist that children or grandchildren don't get money until a certain age. Many can be persuaded that the mechanisms for ensuring this have unintended consequences and can be talked out of their view. 

However some - insistent clients - will not change their mind and the only things you can do is follow their instructions while marking the file to show the advice given but that the client was insistent; or refuse to write the will and show them the door. 

If the OP's mother died less than two years ago and all the beneficiaries are agreeable I'd suggest that the OP considers a Deed of Variation to get rid of the age stipulation and let the grandchildren have the money now.

https://www.gov.uk/alter-a-will-after-a-death

Your defence of solicitors is of course commendable. 

 My bias in this case was partly informed by the OPs solicitor apparent inability to provide him with a coherent roadmap of action in relation to his trusteeship going forward, but if the OP confirms that the solicitor did inform him of the trust's exposure to the 45% income tax regime and his obligation to submit annual tax returns as a result then I might ( grudgingly) give this solicitor the benefit of the doubt.

However, my general  bias against the ( largely) smaller firms that do not have the requisite competency in trust and estate tax matters the general public might expect, is a professional one. 

 The latter quarter of my consultancy work ( prior to retirement) involved referral work from clients and fellow professionals in the trust space, to advise on and provide remedial solutions to problems created either by poor drafting of the original trust instrument and/or subsequent faulty tax and accounting administration of the trust by the legal professional entrusted with the task. Typically the errant firms did not have STEP members on their rosters so the quality of their private client trust and estate services suffered as a result.

You will also note that my recommendation to consult another solicitor was not an unqualified one. I specified reference be made to a STEP qualified individual ( for obvious reasons).

Finally, you usefully suggest exploring a deed of variation ,  presumably to erase the unfortunate effect of the contingency imposed by the testator. 

The difficulty here is  in indentifying the beneficiaries who potentially  benefit from the survivorship clause being triggered on death of one or both of the beneficiaries since they are the ones who are legally entitled to release their contingent interests in the boy's  trust funds. As the OP has pointed out in the event of both sons dying before age 25 their trust funds revert to those entitled to the Residual  estate.  So is it sufficient for the current estate residual beneficiaries ( assuming all of age and competent to do so)  to give up their potential rights and thats the end of it?

 Probably not. You also have the complication of potential unborn children of the older son who might stand to inherit  his siblings share but dies before the younger son's survivorship clause is triggered. Defeating contingent interests of unborns is difficult to achieve without the assistance of the equity courts ( a scenario I discussed in another OP case on these forum).

However notwitstanding the hurdles, may still be worth the OP flagging  with a STEP  professional for consideration the possibility of a carefully crafted deed of variation. Such a deed should definitely not be a DIY effort, notwithstanding HMRC 'guidance' on such matters.

IanManc

xylophone said:

Are any of the beneficiaries minors? If so, this could prove complicated.  And would any other adult beneficiaries be agreeable (note that 

the money returns to the estate if the contingency is not met, presumably to be distributed as indicated in the original will)?

It should also be noted that  the OP said

I actually agree with the age tbh, they aren't the best with money!!!

The people who would have to agree on the variation would be the 19 and 22 year old, plus the person(s) entitled to the residue of the estate, as the money "goes back to the estate".

I would expect - though it might not be the case - that the residuary legatee will be the OP (plus perhaps any sibling(s) of the OP, if any). It's quite unlikely that the person(s) getting the residue is a child or children.

As far as the opinion of the OP that you have quoted is concerned, then the OP has a choice. The OP can either choose that the money goes to the 19 and 22 year old now; or the OP can choose to set up, register and then administer a trust for the next 6 years until the younger beneficiary is 25 which will be an absolute pain that is completely avoidable.

I know which I would choose.